Japan's Recession?

The devastating effects of the disaster are finally being tallied

By Michael Schuman Monday, Apr. 18, 2011
    • Yoshikazu Tsuno/AFP/Getty Images

    As the human toll from last month's earthquake and tsunami in Japan becomes clear, so does the damage done to the world's third largest economy. Early signs suggest that the disaster could push Japan into another recession. In March, the Markit/JMMA purchasing managers' index, which measures the robustness of manufacturing, showed that Japan suffered the steepest one-month plunge in the survey's history. Research firm Capital Economics forecasts that Japan's economy will contract 1.4% in 2011. Though painful for Japan, the impact on the global economy might be limited, since the country sells more to the rest of the world than it buys from it. The more dangerous aftershocks could take place later, if the quake significantly worsens the country's feeble national finances. (Government debt is about 200% of GDP, the highest in the rich world.) The cost of reconstruction and possible delays in budget cutting could heighten the risk of a debt crisis, which could create a quake that shakes the world.