Thailand, Indonesia and India face huge reconstruction bills from one of the worst natural disasters in decades, but observers say these fast-growing economies should not be seriously derailed.
Sri Lanka's fragile recovery of confidence, on the other hand, may be the most severe economic casualty of the devastating tsunamis that battered South Asia last weekend.
“Sri Lanka will be hurt more badly than the others,” says Yuen Pau Woo, chief economist for the Asia Pacific Foundation of Canada, a Vancouver think tank.
Mr. Woo says the disaster comes at a time when the island's economy has been improving and the people are taking heart from brightening prospects for peace between the government and the Tamil Tiger guerrillas.
“This comes at a very bad time,” says Mr. Woo, referring to the costs of dealing with destroyed resorts, and damaged roads and ports, as well as the huge loss of human life. “Confidence as a whole has been coming back.”
The challenges facing Sri Lanka are typical of the tsunamis' impact: It will have a devastating effect on local economies, particularly in regions where there is little diversification beyond tourism and fishing.
The one-time bill will be huge. A risk research specialist at reinsurer Munich Re said yesterday that the tsunamis have wreaked economic damage of more than $13.6-billion (U.S.), although he added that the estimate was based on a “gut feeling” in the face of sketchy details.
Still, the fallout over most of South Asia should be relatively short term, some economists say.
That judgment is reflected in the region's financial markets, which reacted to the tsunamis with some downward movement but no sign yet of a crashing retreat.
“The human toll is great, but the economic impact will be small,” says Mr. Woo, adding that economic and psychological effects will not drag out in the manner of SARS or the Avian flu — two recent unexpected shocks to Asian economies.
As the human and physical toll of the tsunamis continues to mount, the effect on every country cannot be predicted with certainty. Still, one forecasting group, IDEAglobal of New York, said the disaster should subtract 0.5 percentage points from Thailand's 2005 gross domestic product, and 0.2 percentage points from Indonesia's.
Much of that effect would come from shocks to tourism, which in Thailand, for example, accounts for 6 per cent of GDP. The loss of income from resorts in South Thailand reaches back to hit myriad suppliers throughout the country.
“There is a multiplier effect that is right off the scale,” says Paul Beamish, a management professor specializing in Asian business at the Richard Ivey School of Business at University of Western Ontario.
Tourism is the worst-hit industry, agrees Wendy Dobson, director of the Institute for International Business at University of Toronto, and the pace of rebuilding will depend on the insurance industry, which is still counting up its losses. Several thousands of people, mostly heads of families with low incomes, have been lost in the fishing industry, as well.
The International Monetary Fund is studying the disaster's impact, looking for the effects on capital accounts, balance of payments and fiscal policies in affected countries, as well as the net results of aid inflows. But an IMF spokesman said it is too early to make a call on the final impact.
Still, there is wide agreement that the economic future of Sri Lanka has been put in the most peril because of the devastation and the displacement of one million people in a country with a population under 20 million.
“It is probably the worst blow the Sri Lankan economy has suffered,” said Arjuna Mahendran, chief economist and strategist at Credit Suisse Private Banking in Singapore and a former head of the Sri Lankan investment board.
He told Bloomberg News that economic growth in 2005 will probably fall to 4 per cent from the 5-per-cent forecast. Large reconstruction projects may not start until 2006, he added, because the government lacks the resources to push them ahead.
In all affected countries, the fallout could extend far beyond tourism if there is long-term damage to the infrastructure of roads and ports that transport goods.
In Sri Lanka, there are concerns that key export industries, such as tea and apparel goods, will be hamstrung by transport delays. Officials at the Sri Lankan embassy in Ottawa said the port of Colombo was operating yesterday, but the key southern port of Galle was still in limited operation, and its rail links have been severed.
The tsunamis are “certain to have some effect” on shipments, said Elliot Lifson, president of the Canadian Apparel Federation and vice-chairman of Peerless Clothing Inc. in Montreal. However, he said he was heartened by news that Maersk Sealand, a major shipping firm, is back operating in most of its Indian Ocean ports after just a day's delay.
He said both Sri Lanka and Indonesia are key suppliers of low-cost commodity apparels to Canada. Peerless does not have suppliers in those countries, he said, but does subcontract some production to Bangladesh, which suffered some damage from the tsunamis.
Any diversion of shipments would come at a bad time for the poorest developing countries. On Saturday, import quotas will be lifted, giving China unrestricted access to markets in North America and Europe. More than any tsunami, that is what worries garment suppliers in countries such as Sri Lanka and Bangladesh.
With files from Reuters, AP
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