The pace of real GDP growth slowed moderately in the fourth quarter of 2010, measured on a quarter-on-quarter basis, but this seemed understandable after a year of rapid expansion. Going into the 2011, moreover, most gauges of economic conditions were reasonably positive. Industrial production was still rising at 3% in January and February, relative to the year-earlier period, and corporate inventories remained comparatively low-implying that firms would probably keep their plants and employees busy. Leading indicators gave further grounds for comfort. Machinery orders, which lead capital expenditures by about six months, increased by a year-on-year rate of over 30% in both January and February, portending strong corporate spending through late 2011. These expectations of future vigor naturally redounded to workers' advantage, as reflected in an unemployment rate that declined from 5.1% in November to 4.9% in January and then to just 4.6% in February. The overall picture was therefore one in which the economy paused at the turn of the year but appeared poised to continue growing with decent speed through the summer and probably into the autumn.

A crisis as momentous as the earthquake and tsunami would inevitably have caused real GDP growth to decelerate, but the damage appears to be more profound than most analysts had originally expected. The Tohoku region that bore the brunt of the natural disaster represents only 4-5% of the domestic economy, and so the initial calculations suggested that the total damage would not substantially exceed the US$100bn caused by the 1995 Kobe earthquake-a much smaller event in a more industrialised and populated area. But those initial estimates have now proved vastly too sanguine: most estimates now put the damage somewhere between US$200bn and US$300bn. Most of the losses were suffered by homeowners and the operators of local infrastructure, but the operations of a number of manufacturers have also been compromised. To understand the significance of this, it is important to note that the structure of the national economy has evolved significantly in the past two decades or so. One difference is that most manufacturers have become more specialised, eschewing the production of complete products and opting increasingly to make parts that are then transported to facilities elsewhere in Japan or abroad. Now the closure of a relatively small plant in a predominantly rural part of the country could create bottlenecks that constrain output everywhere. Underscoring that possibility is the emergence of the "just-in-time" manufacturing processes that Japan pioneered, whereby firms keep their inventories as small as possible and rely on their suppliers to deliver additional goods almost instantaneously when necessary. In these circumstances the disruptions to the local Tohoku economy have led directly to parts shortages at such domestic car firms as Toyota, Honda and Nissan, and foreign car makers as well. The same pattern is unfolding in the electronics industry, where Apple, a US firm, is running short of parts for its new tablet personal computer, the iPad 2, the debut of which unfortunately coincided almost exactly with the March disaster.