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Japanese Quake Has Limited Effect on Southeast Asia Economies

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Daniel Schearf

The disaster in Japan is expected to affect economies in Southeast Asia, but economists say the damage is likely to be limited. They say the region may even see increased investments from Japan as companies seek to diversify away from areas at higher risk from natural disasters.

Japan supplies Southeast Asia factories with components and parts put into cars, electronics, and other products for export, including back to Japan.

That supply chain was disrupted when the earthquake and tsunami hit Japan's northeast, damaging a nuclear plant and forcing many factories to stop production.

Many Southeast Asian countries export to Japan. The Japanese market accounts for about 20 percent of Indonesia’s exports and 17 percent of what the Philippines sends abroad, down to smaller amounts from countries including Cambodia, Laos, and Singapore.

Regional economists say exports may suffer this year. But with Japanese damage assessments and the situation at the nuclear plant uncertain, estimates of the cost to trade are tentative.

Tim Condon, the chief Asia economist for ING Financial Markets in Singapore, said a worst-case scenario would be similar to the 2008 global financial crisis, when Japan’s imports dropped by nearly half.

"If the earthquake damage is that severe we could see damage on the order of 0.7 percent of GDP in Indonesia, about half that in the case of Philippines, and then something even lower than that in the rest of the Southeast Asian economies. So, it ranges from a chunky number in the case of Indonesia, to kind of a negligible figure in the others."

Condon said the best-case scenario would be damage similar to the 1995 Kobe earthquake, which cost Japan about 2 percent of its GDP but saw regional trade recover quickly.

The World Bank said this week that earthquake and tsunami reconstruction could cost Japan up to $235 billion and take up to five years.  

But Japan’s economic growth is expected to pick up in the second half of this year as reconstruction gets underway.

Lei Lei Song, a senior economist with the Asian Development Bank, said that barring any major nuclear contamination, Japan's economy should rebound relatively quickly, and along with it, the trade with Southeast Asia.

"We're still assessing the impact in terms of the GDP growth. But, I guess it's very modest.  It would not change the robust growth we are currently expecting for Southeast Asian economies," said Song.

Southeast Asia's economies grew by about 7 percent last year.

Song said Thailand is one of the countries in Southeast Asia most exposed to economic effects from Japan, partly because of its flourishing auto industry. Thailand is referred to as the Detroit of Southeast Asia because major car companies have factories here.

Condon said Thailand’s auto factories could have some short-term problems obtaining parts from Japan, but that the disaster would not seriously hurt the industry.

"My thinking is that it will probably be the reverse," he said. "They will look to diversify their production sites and move things to cheaper and less earthquake-prone destinations."

Thailand also is tied closely to Japan’s economy through debt. More than 60 percent of Thailand’s foreign debt is in Japanese yen and any appreciation raises the costs for paying it back.

Economists say even if the yen appreciates, though, it will not be difficult for Thailand to deal with it because its external debt is not high.

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