The physical and financial impacts of the Kobe earthquake will further concentrate Japan's activity and efforts on the domestic economy.

The earthquake's aftermath and the rebuilding process are likely to have a lasting impact on economic activity - despite some present claims to the contrary.

Any exact measurement of the direction and magnitude of the economic effects will have to await a proper assessment of the existing damage and the effect of any possible aftershocks.

But it is possible to outline the broad economic directions, or changes of direction, that will occur as a result of the earthquake.

The first of these is self-evident - damage done by the quake to the physical infrastructure of the region and the direct disruption to the economic life of its people.

The second major thrust is the reaction of various economic and political entities to the physical and personal damage done by the quake and how that will impact on the domestic economy.

The third is how both these factors may affect all those economies which have been dealings with Japan - and that means just about every economy in the world to a greater or lesser degree.

As reports from Japan already reveal, there has been tremendous infrastructure damage and this has led to many closures including ports, roads, railways, fuel pipelines and many substantial businesses.

These closures alone, which may prove to be lengthy, will have a direct impact on Japan's production base and therefore its ultimate economic output, both regionally and nationally. It is also likely to hinder Japan's trade performance, with exports likely to slow for a time and imports likely to increase.

This effect on trade will influence the country's major trading partners in the form of a disruption in supply of Japanese goods and increased Japanese demand for supplies.

The secondary effect of the damage is the counting of the cost of the quake and managing the ways of financing the recovery and rebuilding phase in its aftermath.

Already there are signs that the overall financial cost will be enormous, with estimates so far running in the range of US$20 billion (HK$154.8 billion) to $200 billion.

The first impact of financial demands are already being felt on the government budgetary process as the authorities seek to find and allocate funds for disaster control.

But this is just the beginning for the Government. Over the coming weeks and months its budgetary priorities will change as it alters its spending patterns to cope with the damage done by the quake.

Government spending will be on the rise in Japan and this will bring its own pressures to bear on domestic financial markets.

Beyond government, the private sector will also be affected as insurers count the cost to them and companies and individuals seek the funds to rebuild and regenerate economic activity in the region.

These financial aspects of the quake are likely to be felt in re-insurance claims, withdrawal of Japanese funds from foreign markets and a shortage at the margin of Japanese capital seeking foreign outlets.

At the same time the lengthy rebuilding process following the quake will put new demands on the Japanese economy and is likely, at least in the immediate future, to be a spur to domestic growth for the immediate future.

There could even be some spill-over, especially to countries in the region, if Japanese companies from the area seek to relocate plants rather than rebuild domestically.

One thing is for sure, Kobe quake's economic aftershocks are likely to be felt long into the future.

Ian Perkin is chief economist with the Hong Kong General Chamber of Commerce. The views expressed in this column are his own and may not necessarily reflect chamber policy.