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Japan's crisis will not trigger global recession: Economists

Japan's nuclear crisis and the devastations caused by last Friday's earthquake and tsunami are unlikely to trigger a global recession as happened in the aftermath of the collapse of the US investment bank Lehman Brothers three years ago, according to leading economists.

business Updated: Mar 17, 2011 15:29 IST

Japan's nuclear crisis and the devastations caused by last Friday's earthquake and tsunami are unlikely to trigger a global recession as happened in the aftermath of the collapse of the US investment bank Lehman Brothers three years ago, according to leading economists.

However, they expressed fears that automobile and electronic industries around the world, especially in Asia, Europe and the US, may face manufacturing delays, if the Japanese production of components remain crippled for a long period.

Concerns over a renewed global recession or a bankruptcy of Japan are unfounded, said Thomas Mayer, Chief Economist, Deutsche Bank, Germany's largest bank.

Even though Japan is the world's third largest economy, its share of the global gross domestic product (GDP) is below 5 per cent.

Therefore, the consequences for the global economy from the catastrophe will be very minimal, Mayer said in an interview to German economic daily Handelsblatt.

In the areas hit by the earthquake and tsunami, relatively less industries are located, but the main problem is the disruption of power supply.

The Deutsche Bank estimates that the power cuts could reduce monthly growth of the Japanese GDP by 0.1 per cent, Mayer said.

The Japanese economy has to cope with a second successive quarter of negative growth this year after a strong turnaround in 2010.

Before the earthquake and tsunami, the Deutsche Bank had forecast a 1.6 per cent growth for the Japanese economy this year.

This will have to be corrected downwards depending on whether the nuclear crisis intensifies and how long it takes to start the reconstruction, he said.

Mayer estimated the costs of reconstruction will be much higher than around 10 billion yen invested by the government after the Kobe earthquake if the situation at the crippled reactor complex in Fukushima worsens and becomes a full-blown nuclear catastrophe.

In the Kobe earthquake, much more industries were destroyed, but the number of casualties were around 6,500, which is about half of the estimated loss of lives in the present disaster, he said.

Klaus Juergen Gern of the Institute for World Economy at the University of Kiel said that the earthquake, tsunami and the unfolding nuclear crisis in Japan could affect supply of electronic components worldwide, especially chips which are crucial for a wide range of industries, including the automobile sector.