As the Japanese tsunami and earthquake and fear of a nuclear catastrophe sent Japanese shares and Asian stocks tumbling, Malaysian economists are saying the post-quake reconstruction process would likely to boost the Asian regional economy.
The situation in Japan, the world's third largest economy costs Asian stock market to plunge due to panic selling.
Nikkei dropped to the lowest in two years 11.4 percent on Tuesday, on top of the 6.2 percent decline a day before.
Hong Kong's Hang Seng plunged 2.9 percent and Malaysia's KLCI dropped 0.75 percent after Japanese Prime Minister Naoto Kan announced an increased level of radiation from the nuclear reactors and told residents living within 30 miles (48.3 kilometers) to stay indoors.
Economist, Dr. Yeah Kim Leng, told Xinhua in Kuala Lumpur on Tuesday that although Japan's disaster is resulting in uncertainties in Asian trade and stock exchange, it could ultimately boost regional economies when the reconstruction process begins.
"Recovery efforts in Japan will likely create an increase in demand, temporary boost to global economy, although we are concerned about the medium to long term impact of a slower or weak Japanese growth that may further tilt back to the double dip.
"So likely the earthquake may cost a double dip, although in the short term, we may see a boost in reconstruction efforts," Dr. Yeah says.
10 percent of Malaysia's overall exports goes to Japan, which also makes up about 12 percent of Malaysia's overall imports.
Timber companies in Malaysia would be the first to benefit from Japan's post-construction activities.
Malaysia is the largest exporter of timber to Japan, which heavily rely on imported timber products like plywood.
Dr. Yeah said production in Japan was well managed this time around compared to that in the previous earthquake.
And Japan's ability to ram up production in unaffected areas could help moderate and smooth out production losses in affected areas.
"We do see a short term disruption, how quickly they can move back to smooth out will depend on their dependency and their ability to source alternative supplies, because intermediate imports from Japan actually account quite substantial amount of our imports from Japan.
"They could face some temporary shortages. We have noted last year they have filled up in inventory levels, so that three to six months time of buffer would help them moderate any disruption to the production," he says.
The devastation in Japan also resulted in the appreciation of the Japanese yen because they are repatriated to fill demand to help in reconstruction.
The appreciation, Dr. Yeah said, would result in higher costs in Malaysia.
However, Dr. Yeah said there was offsetting effect if the ringgit actually appreciated as well in relative to the U.S. dollars.
"We do see last year the ringgit appreciated by about 10 percent against the U.S. dollar, so that somewhat helped moderate the imported price inflation.
"But against the Japanese Yen, if it (the Japanese yen) continues (to gain value), then we do see a rise in our cost of production, especially in goods that require import from Japan," said Dr. Yeah.
