12/31/2004, 00.00
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Tsunami: a disaster at the human level, but less so for the economy

by Maurizio d'Orlando
Asian stock markets continue to gain, and growth rates in affected areas are not expected to drop by much.

Rome (AsiaNews) – The seaquake catastrophe has brought death and destruction but has not impaired the area's economic élan: it's what one might call an "economically" correct disaster.  Asian stock markets are in fact seeing out the old year at levels which are record high for the recent period, whereas countries struck by the disaster are expected to see only a limited decrease in growth.

The two main listings in the area, the Japanese Nikkei and Hong Kong's Hang-Seng, are at their highest levels (Nikkei 11489 +9.0%, H. Seng 14230 +0.5%), as are other markets (Bangkok SET 668,+0.5%; Singapore Straits-Times 2062, +0.2%).  Even in India and Indonesia, two of the countries hardest hit by surging waters, markets have reached records highs, while the Jakarta Composite registered a modest loss (-0.4%) at today's closing.  Asian stock exchanges are in fact expecting an economic upswing in the coming year and are betting that their economies will be its main beneficiaries.  Sri Lanka's market, as well, with an economy that relies somewhat on tourism, has not strayed far from all-time record high levels: in the tsunami's wake, the listing initially lost 5.3%, but yesterday recovered 1.6%.

Given the current tragedy, all this is perhaps a sign of hope, as it would seem that at least the economy has been spared.  In any case, the total cost of the disaster is not expected to be more than 10 billion euros, when calculating both insured and non-insured goods, as was explained a few days ago in a statement to Reuters by Stefan Heyd, a board member of Munich Re, one of the world's top reinsurers.  This figure does not amount to much when compared to the 40 billion dollars (30 billion euros) paid out over 2004 on claims arising from natural disasters.  So, for those who reinsure insurers, there is no great cause for concern.  On the other hand, of course, a good part of the damage is been suffered by fishing villages that were not insured.

Furthermore, the value of hotels and other real estate in vacation localities is generally not high: in the areas affected by the seaquake, success in tourism has depended on the ability to compete with areas closer to high-income countries.  With the cost of air travel weighing considerably on the overall cost of vacation packages, the cost of rooms and all other on-site services must be kept to a minimum.  By all means, Italian Prime Minister Silvio Berlusconi did well to call an extraordinary G8 meeting, considering that few other recent disasters have resulted in such a great number of casualities.  Likewise, the proposal for debt relief in favour of the poorest countries struck by disaster (Somalia and perhaps Indonesia) is undoubtedly a good thing.

At the macroeconomic level, however, the seaquake's impact seems paradoxically very limited in relation to the human catastrophe that is playing out.  According to estimates of the Thai Ministry of Finance, the reduction in the country's economic growth should be limited, increasing by 6.1% rather than the 6.3% expected before the disaster.  Instead, according to a forecast by Britain's Standard Chartered Bank, for a country as small as the Maldives, economic growth reduction will be greater: the rate should be about 4% less than previously expected.  For Sri Lanka, a 2% drop in growth is expected.

These are undoubtedly significant percentage figures but they should not be overly worrisome in an area which, according to World Bank calculations, registered 7% growth this year, powered by the Indian and Chinese economic locomotives.

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