Japan's devastating earthquake and tsunami is so far causing only minor ripples on the global and Canadian economies — and may yet boost the recovery, say analysts.

While the Japanese stock exchange's benchmark Nikkei 225 stock average slid more than 12 per cent Tuesday, losses in other world markets were shallow and few analysts were downgrading the prospects for the global economy.

The mild response may seem counter-intuitive given the level of destruction and tragic human toll, but analysts note that as an element of the global economy, the affected area is a minor player.

"The area is basically eight per cent of the Japanese economy and Japan is eight per cent of the world economy, so this will have a material impact on the Japanese economy, but it won't have an impact on the world economy," explained Craig Alexander, chief economist with the TD Bank.

Then there is what is often referred to as the "perversity of economics," which dictates that destruction doesn't show up in gross domestic product output, but rebuilding does — although that does not mean Japan will be economically better off.

Japan's economy does face an immediate disruption in terms of production and business investment that could slow GDP growth by half a per cent or more, and reconstruction will need to be done on borrowed money.

According to some estimates, the reconstruction bill will cost at a minimum $180 billion, or 50 per cent more than the major Kobe earthquake in 1995.

"While it could take somewhat longer (than Kobe) to recover from the latest quake, the same general pattern should hold with the near-term drag being offset by a lift to growth in the second half of 2011 and 2012," said CIBC economist Peter Buchanan.

For Canada, the direct impact may be a short-term disruption in supply-chains to isolated firms, and minor reduction in exports short-term.

Longer term, Canadian exports in copper, lumber and other building materials may get a boost as the reconstruction phase begins.

Not all agree that the global economy will ride out the latest crisis, however.

Capital Economics' London analyst Julian Jessop warns that markets may be underestimating the potential for the disaster to plunge Japan into a second recession and financial crisis.

University of Maryland economics professor Peter Morici adds that global confidence may be rocked by an unfolding crisis at Japan's nuclear plants.

"There will be a boon from all the rebuilding. Japan will rebuild and they will rebuild a better Japan," he says.

"But what I'm concerned is that it overwhelms the Japanese for awhile, and the psychology spreads. There are not models for this, this is war-time devastation without the war."

Morici admits it's too early to say whether his concerns will come about, but cautioned against assuming the quake's aftermath will follow the same pattern as Kobe, or Katrina in New Orleans.

"The conventional wisdom is that it won't have a big impact in the world," agrees the Bank of Montreal's Douglas Porter, "but I don't know what we've lost here and what production could be hampered. I just don't think we know yet."

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