Scenarios for the Fukushima Daiichi nuclear plant

The Fukushima Daiichi nuclear plant has been rocked by a series of explosions and fires following the earthquake and tsunami that struck the eastern side of Japan on March 11th, triggering a major crisis in Japan. Nuclear materials in several of the facility's reactors have been overheating, following the loss of power to their cooling systems. As workers have struggled to restore cooling functions, there have been at least two fires and four hydrogen explosions at the power plant. These incidents have resulted in the partial release of a hazardous amount of radioactive material, according to the plant's operator, Tokyo Electric Power (TEPCO).

In response to the earthquake and tsunami damage and the subsequent damage to the nuclear reactors, the Economist Intelligence Unit has cumulatively downgraded its forecast for Japanese GDP growth in 2011 from 1.6% to 1%. Given that reconstruction should boost growth the following year, we have raised our forecast for 2012, from 1.4% to 2.1%. Whether this forecast remains appropriate will depend on whether the situation at the Fukushima plant improves, remains uncertain or worsens.

Benign scenario: The danger of a more serious nuclear accident dissipates in the next few weeks. So far, the overheating reactors have had a negative impact because of fears that the situation could deteriorate. Worries about further radiation poisoning have triggered panic-buying of supplies, prolonged office closures and resulted in a growing exodus from Japan of expatriate workers. Still, most people have generally displayed a remarkable degree of calm. Although it will take time to restore and reintegrate the sections of the national power grid damaged by the earthquake and tsunami, economic activity in areas of Japan that did not sustain serious physical damage could return to normal in the coming months. In this event, our current forecast is unlikely to change significantly.

Persistent uncertainty scenario: The present state of elevated risk and uncertainty persists for some time. Spent nuclear fuel can take weeks to cool. Even if the latest emergency measures succeed, as yet unforeseen problems could surface in the other reactors. Indeed, aftershocks appear to have inflicted further damage on the Fukushima Daiichi facility and interrupted emergency cooling efforts. If the situation worsens the broader economic impact would depend on how long the crisis simmers without getting markedly worse. With every passing day, the possibility of a catastrophic radiation leak is further fraying the nerves of businessmen and consumers. There are also significant opportunity costs in terms of the broader relief and rebuilding effort; as long as the government continues to focus on the nuclear emergency, reconstruction and infrastructure issues will not receive its full attention. This, in turn, would delay the reconstruction-driven uptick in the rate of economic growth that we currently expect to begin in the second half of 2011.

Worse-case scenario: The outlook would deteriorate dramatically in the worst-case scenario of a nuclear meltdown accompanied by widespread contamination. Most experts in the nuclear industry appear to agree that the superior design of the Fukushima reactors virtually rules out a widespread catastrophe on the scale of the one that occurred in 1986 at the Chernobyl nuclear power plant in Ukraine. Yet the situation could worsen in any number of ways that would significantly magnify the negative impact of the nuclear crisis. Increasingly dangerous radiation leaks or a permanent forced withdrawal from the facility of crisis-management personnel could trigger broader evacuations and create a sense of panic in the capital, Tokyo. The economic costs of the disaster would multiply accordingly.