Streams

Week Ahead: Japan And the Global Economy

Monday, March 14, 2011

As recovery efforts continue in Japan and rescuers keep searching for the injured, dead and missing, the growing nuclear crisis has the country — and the world — on edge.  Just how successful Japan is at preventing a possible meltdown at the reactors will spell the difference between a short-term, immensely tragic event and a long-term, global disaster.

If there is no major fallout from the damaged nuclear reactors, the economic effect is largely expected to be limited to Japan. In the short-term, growth is expected to stall as a result of damaged infrastructure, rolling blackouts and shut-downs in the automobile and electronics sectors and even at the nation's breweries. But spending to rebuild Japan will most likely help boost economic growth. 

The downside is this spending will most likely add to Japan’s public debt, already the second worst in the world at 228 percent of GDP (by way of comparison, the U.S. is 36th with the public debt equal to 59 percent of GDP).

But another worry: will Japan's disaster pile onto increasing concerns about the global economy. The Wall Street Journal’s David Wessel and Mark Whitehouse asked, "Will the weekend's jarring videos and headlines from Japan, combined with unease about the Middle East and Europe, undermine financial markets already distrustful of global governments' ability to repay debts?"

And is there now a future for nuclear energy? For those hoping for a rebirth in the of the industry in the U.S., videos of reactors exploding, expelling radioactive clouds, certainly can't help.

"The nuclear disaster in Japan will cause more delay in reducing dependence on oil from the politically volatile Middle East," wrote Peter Morici at the University of Maryland.

The Obama administration's push for billions of dollars in loan guarantees for new nuclear facilities and the status of pending applications will undoubtedly be reviewed Wednesday at a House hearing featuring the head of the Nuclear Regulatory Commission. 

Outside of Japan, inflation will be front and center in the U.S. this week with reports on wholesale and consumer inflation on Wednesday and Thursday. The Federal Reserve meets to review interest rates on Tuesday. 

Head scratching by the larger group of non-economists Americans could also rise this week if the Fed continues to state that inflation is “somewhat low” even as gas and food prices rise.

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