A massive human tragedy - with limited economic impact
Economists expect little impact from tsunami on regional growth
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By Päivi Isotalus
According to assessments by economists, the tidal waves swept away no more than one half of a percentage point of the economic growth figures of the Asian countries hit by the disaster. The economic impact of the earthquake is significant for the countries that have suffered destruction, but for the whole Asian economy it is small. The main reason for this is that the economic powerhouses of the region, China and Japan, were spared destruction.
Mika Erkkilä, an economist at Nordea Bank, says that the economic growth of Thailand and Indonesia next year will be about 0.5% less than what Nordea had predicted previously. In the autumn Nordea predicted that the Thai economy would grow by 5.9% next year, and that Indonesia’s growth would be 4.3%.
"We could compare this to the SARS epidemic of 2003 - assuming that the number of tourists in the area does not permanently decline", Erkkilä says.
The SARS epidemic brought down the GDP of Asian countries for a short time. Growth rapidly bounced back when the spread of the disease was brought under control.
Teppo Koivisto, head of research at the OP Bank Group, believes that the impact of the tsunami on the Asian and global economies will be much smaller than that of the SARS epidemic.
The American credit analysis company Standard & Poor's said on Wednesday that the Indonesian earthquake will not affect the credit classification of the countries affected by the disaster.
"The human losses are immense, but the dent in the GDPs of the countries is evened out by investments in construction and the return of the tourists to most of the areas", said Ping Chew, who is responsible for S & P’s classification by countries.
Tourism is the business that is hit the worst by the disaster. The beaches hit by the waves did not have significant industry or harbours. Instead, many hotels and small businesses which depend on tourism were destroyed.
One way to assess the economic impacts of the destruction is to note that six percent of Thailand’s GDP is from tourism, and about ten percent of this comes from the areas that suffered destruction.
Thailand’s Prime Minister Thaksin Shinawatra said on Tuesday that the destruction caused by the tidal waves will cost Thailand about half a billion dollars. He promised state aid to the affected areas.
Thai officials believe that the destroyed area will be back in shape in a few months. Analysts are more pessimistic and believe that reconstruction work will take from 6 - 12 months.
This year about 12 million tourists have visited Thailand. The SARS epidemic caused a seven percent gap in tourism a year ago. If the same kind of slowdown occurs this year, the country could fall short of its goal of 13.4 million tourists for 2005.
In Sri Lanka tourism is just recovering from two decades of civil war. Last year half a million tourists visited the country.
However, tourism has become an increasingly important source of livelihood for Sri Lanka, as the country looks for new mainstays in addition to the textiles and clothing industries, now that textile import quotas are to be eliminated this year.
Reconstruction of the devastated areas could be more difficult in Sri Lanka and Indonesia than in Thailand; years of violence and corruption have eroded the countries’ resources.
Standard & Poor’s predicts that international aid will help the smallest economies, such as those of Sri Lanka and the Maldives, to cope with the cost of reconstruction.
Economists do not believe that the Indonesian earthquake will spark the kind of Asian crisis that took place in 1997 - 1998. Stock market prices and local currencies in the affected countries went down early in the week, but the shifts have been moderate.
The euro has continued to gain in strength, but the main reason for that is still the double deficit of the United States, which pushes the dollar down.
Earlier in the week there was also a rumour that insurance companies had cashed in some of their dollar investments in order to get cash to pay for the damage caused in Asia. However, there was no way to verify the rumour.
The MSCE index, which gauges the value of Asian stocks, rose to its highest level in four years on Wednesday, when the strong figures of US consumer confidence raised the value of shares of Asian export companies. Of the disaster-hit countries, share prices in Thailand and Sri Lanka went down, but in India they went up.
The most successful bourse in the area in 2004 was the stock market in Indonesia, whose index has risen by 44%. The bourses of Thailand and China have had the poorest performance, actually declining by 14%.
Helsingin Sanomat / First published in print 30.12.2004
PÄIVI ISOTALUS / Helsingin Sanomat
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| 4.1.2005 - THIS WEEK |
 A massive human tragedy - with limited economic impact |
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