Canadian economy and the Japanese connection...

As the scale of the tragedy in Japan slowly becomes clear, economists and other analysts say the impact to the Canadian economy is decidedly mixed.

Once Japan begins the long, arduous process of rebuilding homes, factories and shops, demand for Canadian construction goods such as lumber could soar.

Tourism operators in Western Canada, long a popular destination for Japanese travellers, could take a big hit in the short term, as could the Ontario economy because of disruptions in the automaking sector.

In 2009, the most recent data, there were 85,575 Japanese visitors that spent at least one night in B.C. It is estimated they spent $111 million in total.

“In the short term, it's not good for anybody,” said Brian Bethune, chief Canadian economist at U.S.-based economics analysis firm IHS Global Insight.

“There will be decreased imports and exports, supply chain disruptions, and reduced travel.”

It also wreaked havoc with the loonie.

In trading Tuesday, the loonie closed down 1.19 cents (U.S.) at 101.63 cents after going as low as 100.26 cents.

In the medium to longer-term, however, Bethune believes demand for fuel and lumber will be a boost for Canadian commodities suppliers.

The reconstruction of Japan, which some estimates have pegged at over $200 billion, won't just be taking place in the north of the country, the area hardest hit by the earthquake and tsunami, believes Paul Beamish, international business professor at the Richard Ivey School of Business at the University of Western Ontario.

“If you are living in a village down the coast from one of the affected areas, and your home or your business was built the same way with the same materials as the ones which were affected, are you going to feel safe? I don't think so,” said Beamish.

“I think this is going to lead to a complete change in the way things are built there, and that will lead to a huge demand for lumber,” Beamish added. “It's going to help everybody who supplies construction materials. As horrific as a humanitarian catastrophe as this has been, the reconstruction in some ways will be a massive stimulus.”

The head of Canada's main lumber industry group bemoaned the human tragedy unfolding in Japan, but admitted his group's members could benefit.

“We believe we'll be part of the solution to rebuilding Japan. Not the whole solution, because it's going to be a massive effort, but we'll be part of it,” said Avrim Lazar, president and CEO of the Forest Products Association of Canada.

Lazar says the reconstruction will boost the price of softwood lumber on world markets.

“It will definitely boost global prices, but it's still too early to tell by how much,” said Lazar.

Lazar believes wood will be especially popular as Japan seeks to find stronger construction methods. Because it's flexible, it doesn't snap or crumble under tension as easily as other materials as concrete or metal, Lazar explained.

“That's one aspect of our products that has already been of interest in Japan,” said Lazar.

Meanwhile, Toyota has eliminated overtime at its two assembly plants in Cambridge and Woodstock temporarily this week to ease demand for parts from Japanese suppliers. It will allow staff from those Japanese suppliers to assist in disaster relief efforts instead of producing parts.

A spokesman for Honda Canada said the Japanese catastrophe has not affected assembly operations in Alliston, because most of its parts come from North American suppliers. Honda has idled several operations in Japan this week because of the need to conserve energy.

Japanese products such as TVs and radios won't be heavily affected in Canada, said Beamish. “A lot of the Japanese products we buy here now are actually made in third countries like China.”

Tuesday, the Royal Bank of Canada said it is lowering some of its fixed rate mortgages by as much as 0.2 percentage points effective Wednesday, The Canadian Press reports, because investors are jittery over fears a potential nuclear disaster in Japan could severely derail the global economic recovery.