Global growth in the wake of Japan’s earthquake

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“Japan – a shrinking player in the world economy,” says BCA Research in a new report.

“According to IMF data, Japan’s share of global GDP has fallen over the past two decades from a high of about 10% in the early 1990s to under 6% today. Even more noteworthy is that on a purchasing power parity basis, the IMF estimates that Japanese growth has only accounted for about 1% of the world’s growth over the past five years. This is of course mostly due to the rapid expansion in emerging economies, but highlights that even without the devastating effects of last week’s earthquake, Japan is quickly becoming a small player in global growth. It also helps to explain why the blow to financial markets in the region (excluding Japan) has so far been fairly mild.

“In terms of the advanced economies, the country that is likely most susceptible to a slowdown in Japan is Australia – about 20% of Australia’s exports are destined for Japanese markets.

“Bottom line: Last week’s devastating earthquake in Japan may have limited impact outside of the country, given that global growth dynamics no longer rely heavily on a demand impulse from Japan.”

Time will tell …

Source: BCA Research – Daily Insights Service, March 15, 2011.

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