Bangkok--Jan 6--Aziam Burson-Marsteller
Lehman Brothers
Asian tsunami: big social impact; minimal economic impact
This is a major natural disaster with terrible social consequences, but the macroeconomic impact is likely to be minimal. On 26 Dec, Asia suffered the world's most powerful earthquake in 40 years, registering a
magnitude of 9.0 , and causing 10-meter high tsunamis. The epicenter of the earthquake was in the waters off the Indonesian island of Sumatra, but the tsunamis were far reaching, affecting Thailand, Sri Lanka, India, Malaysia and the Maldives. The spread of epidemics is a high risk, because of the losses of power, drinking water, and the lack of health facilities.
Unlike the SARS outbreak which lasted for several months, this is most likely a one-off natural disaster, which mainly affected coastal towns and villages. There have been no reports of significant damage to big cities or industrial/port facilities. The biggest economic damage has been to the fishery and tourism industries. But even here, the damage is likely to be temporary:
overseas tourists are canceling New Year holiday plans (eg. there are reports that overseas tourists cancelled about 60% of New Year bookings at hotels and resorts in Southern Thai beach provinces), but as it becomes clear that this was a one-off natural disaster, visitor arrivals will most likely rebound in a couple of months.
Moreover, any loss of tourism revenue and fishery output is likely to be offset to a large extent by substantial reconstruction expenditure. So while there is likely to be some short-term negative effects on some industries (fishery, tourism, airlines, insurance), there will be positive effects on others (construction, mining, health and social work), and so the overall negative impact on GDP will not necessarily be large.
Japan's major earthquake in the port city of Kobe in January 1995 is a case in point.
The Kobe earthquake killed 6,400 people and was likely far bigger in terms of capital destruction, costing US$95bn in damage. Yet the negative impact on Japan's GDP in 1995 is not obvious, largely because of the massive capital reconstruction that followed. Indeed, there are already reports of a massive overseas financial relief efforts underway, involving at least 24 countries.
Of the South-East Asian economies that we cover, in Thailand tourism comprises a hefty 6% of GDP, and the tourist area of Phuket was severely affected (in 2002, Phuket accounted for 14% of Thailand's total number of hotel guest arrivals. But Thailand is running a fiscal surplus, and with general elections in February, the reconstruction effort is likely to be quick and significant. In
Indonesia, the most affected area was the province of Aceh, which has little tourism (Bali was not affected) but is rich in oil resources. But there have been no reports of significant damage to Aceh's key oil infrastructure. Malaysia has been relatively less affected, with no major damage to the tourist resorts of Penang and Langkawi; in Malaysia it is mainly the local towns and villages that have suffered.
Our conclusion: This is a huge natural disaster with terrible social consequences, but we judge that the macroeconomic impact at the GDP level is likely to be minimal. At this juncture, we have decided not to alter our 2005 GDP growth forecasts for Thailand (6.0%), Indonesia (5.8%), or Malaysia (6.0%). Of course within the economies, there will be some industries that are short-term losers and winners. The losers are tourism, airlines, and insurance. The clear winner is construction. There may also be some short-term substitution effects. For example, the nonaffected tourist areas in Thailand, Sri Lanka, and Malaysia will likely face increased demand, as may other major tourist resorts in Asia which were not affected, such as Bali in Indonesia and Cebu in the Philippines.
Satida Sritunyatorn
Media Relations Manager
Aziam Burson-Marsteller
Tel: 0 2252 9871 x122
Fax: 0 2254 8353 End.