DespitethestaggeringlossoflifeinAsia,productivecapacitywasonlymodestlydamaged,andrebuildingwouldboostbusiness

　　Thelate-Decembertsunamiusheredin2005onasombernote,withthedeathtollatover140,000andrising.SeveralmillionhavebeenlefthomelessalongtheIndianOceancoast,inparticularinIndonesia'sAcehprovinceandinSriLanka.Therebuilding,alongwiththeimmediateneedforemergencyfoodandmedicalassistance,willrequireaglobalreliefeffort.

　　However,ifonepositivethingcouldbesaidintheaftermath,itmightbethis:Itappearsthatdisruptiontoeconomicoutputwillbefarlessseverethanthehumandevastationcausedbythecatastrophe.Evenintheseveralcountriesmostseverelyhit,theeffectswerelargelyrestrictedtotheimmediatecoastalarea,withrelativelylimiteddestructiontoproductivecapacity.InIndonesia,forexample,theoilandgasindustrylargelyescapedseveredamage.

　　Despitetheoverwhelmingdestructiontocertaincoastalvillages,themodestdamagetononresidentialproperty-andtherefore,productivecapacity-washighlightedbythegenerallynonchalantreactioninstockmarketsacrosstheregionintheweekfollowingtheevent.SincethelasttradingdaybeforethetsunamionDec.26,theJakartaCompositeIndexonJan.3wasactuallyup1.4-outpacingtheHangSeng（ 0.3）andtheNikkei（ 1.1）.Amongthebetterperformerswereconstruction-relatedstocks,withaneyetowardrebuilding.TheStockExchangeofThailand（SET）slippedahardlydisastrous0.3.

　　QUICKTOURISMREBOUND?Theonenotableexceptiontotherelativelysanguineoutlookfortheregion'seconomies:Thailand'stouristsector.Itsbeachresorts,andmostnotablyPhuket,sufferedmajordamagefromthetsunami,includinglossofseveralthousandlivesamidamajorholidayweek.Thetouristsectoraccountsforapproximately6ofThailand'sgrossdomesticproduct.Ifweassumethatthedisruptionsubtracts25ofbusinessduringthefirstquarterof2005,thiswouldshaveabout1.5percentagepointsfromGDPgrowthduringthequarter,perhapsoffsetbyacoupleoftenthsofapercentagepointinrebuildingefforts.

　　AsweatActionEconomicshadbeenassumingThailand'sgrowthatabout5during2005,theexpectedfirst-quarterdisruptionwouldleaveGDPessentiallyflatfromthepreviousquarter.EvenassumingaquickresumptionofGDPexpansionatthepreviouspace,thiswouldtrimannual2005growthby0.5percentagepoints,to4.5,fromouroriginalforecastof5.

　　Muchwoulddependontourists'willingnesstoreturntoPhuket,whichwedon'tthinkwillbeaseriousproblem.NoteBali'srelativelyquickreboundafterthebombingseveralyearsago,wheretouristsperhapshadmoretofearaboutthantheprobabilityofanotherdisaster.

　　COUNTERINTUITIVEBOOST.TheprimaryIndonesianresortareas,suchasBali,largelyescapedfromtsunamidamage,alongwiththekeyresource-producingregions.Acehprovince,whichwasdevastated,accountsforonly1to2ofIndonesianGDP.Afterbalancingtheanticipatedboostfromrebuildingefforts,thenetsubtractionfromIndonesianGDPin2004arisingfromthedisasterwilllikelybesmallerthanthe0.5percentagepointsseenforThailand.Wewouldstilllookforgrowthcloseto5in2005.

　　ThecounterintuitiveresultofadisasteractuallyboostingeconomicactivityinsomesectorsissimilartowhatwasseenwiththeFloridahurricanes.ThegainGDPgrowthexperiencesissometimestermedthe"brokenwindoweffect,"wherebythedestructionofpropertydoesn'taffecttheproductionprocess,whilereplacementactivitydoes.

　　Americandatarevealedthatconstructionistemporarilydisruptedbutthenisboostedoverallbyeventslikehurricanes,whilesalesattheretaillevelactuallygainsteamduetostrongerdemandforsomegoods.Factoryandtransportationdisruptions,aswellastheimpactonindustriessensitivetotourism,dominatethenegativeeffectsonoutput.

　　DUALGROWTHENGINES.LiketherestofEastAsia'seconomies,includingJapan's,the2005GDPgrowthprospectsforIndonesiaandThailandwilllikelydependmoreontheextenttowhichglobalexportdemandcangetbackontrack,aftersputteringduringthesecondhalfoflastyear,thanonthetsunami.

　　Theseexport-driveneconomieswillcontinuetolooktotheU.S.andChinaasthedualenginesofworldgrowth.Byourestimates,theoutlookispositiveforthetwoleaderstocontinuefulfillingthisrolein2005.Barringsomesortofgeopoliticalshockthatcouldsetoilpriceshigherandthreatentoderailtheglobalexpansion,suchgrowthwouldbewelcomedinnationsnowundertakingthearduoustaskofrebuildingtsunami-devastatedareas.