The impact of the devastating earthquake and tsunami in Japan will only have a limited direct economic impact on the eurozone, according to an analyst.
The eurozone impact of the natural calamity is lessened by two factors, according to Ben May, European economist at Capital Economics. The first is that the actual impact of the quake and tsunami on Japan's gross domestic product (GDP) is likely to be pretty small. Secondly, the trade linkages between the eurozone and Japan are small while those eurozone economies which have the highest trade exposure to Japan are the region’s strongest performing economies, May said in a note.
However, May said the indirect impact of the catastrophe and its long-term drag on global economic recovery will be significant. Needless to say, the violent gyrations in the financial markets over the past week could have a damaging impact on business and consumer confidence and prompt the fragile recovery to grind to a halt, May said.
The economist also said the Japanese tragedy has cast a shadow of uncertainty over the European Central Bank's monetary policy position. Recent events in Japan mean that an interest rate hike by the ECB in April is now less clear cut. But it might take further sustained falls in financial markets and a sharp drop in business and consumer confidence to prompt the Bank to postpone its monetary tightening for a prolonged period.