EDMONTON - It's a little early to know with certainty how Japan's devastating earthquake will affect the global economy, energy prices or market psychology.

With all the other factors at play -the war in Libya, the U.S. fiscal crisis and the looming end of the Federal Reserve Board's moneyprinting program, which has temporarily boosted stock prices -it's just another brick in a mounting wall of worries.

"The Japan earthquake adds another uncertainty to markets that were already plagued with turmoil in the Middle East and European debt concerns," Kang Shin Woo, chief investment officer at Korea Investment Management Co., told Bloomberg. "This could raise concern for the Japanese economy, (which) has showed some signs of recovery."

Nonetheless, even as horrific video footage of the devastation in Japan began filling North American TV screens on Friday, economists were already trying to assess the magnitude of the disaster.

Sherry Cooper, BMO's chief economist, was among the first out of the gate. She compares the latest tragedy to the 1995 quake that levelled the city of Kobe, Japan.

Although that quake was also huge, it had little impact on Japan's annual GDP (gross domestic product), she notes. It didn't have any clear effect on oil prices, either, which were then mired below the $20-US-per-barrel level, less than a fifth of the current price.

Although Cooper has cut her estimate of first-quarter GDP growth for Japan, she figures the nation's rebuilding efforts will boost GDP in the second and third quarters, as reconstruction begins.

Investors seem to agree: West Coast lumber stocks were among the biggest winners Friday, with shares of Canfor, Interfor, Timber-West and Weyerhaeuser all posting hefty gains.

Overall, just 2.4 per cent of Canada's exports went to Japan over the past year, Cooper notes, but the share in B.C. was 14 per cent. After the Kobe quake hit in 1995, Canada's exports to Japan surged by 24 per cent. Hence, B.C. is likely to benefit again in 2011, she says.

Here are some of Cooper's other observations:

Automotive sector: In 2010, the U.S. imported $47.2 billion of motor vehicles, $32 billion of parts and $11 billion of aerospace products from Japan.

With output expected to be cut or halted at some Japanese car plants, and port operations also likely to be affected, those imports are bound to fall, she figures.

Ontario's auto industry, which is still recovering from the devastating impact of the recession, could benefit.

Commodity prices: Japan is the world's third-largest consumer of commodities, and its daily oil needs are almost entirely dependent on imports.

Imports will sag in the wake of the earthquake, as refineries and import terminals take stock of any damage to infrastructure. And that's why oil prices sagged Friday.

"As well, a flight-to-safety (into U.S. T-bills) will likely exert a negative impact on the prices of many commodities, which had already been under downward pressure prior to the earthquake," she notes.

"Over the medium term, however, reconstruction will increase the demand for a wide range of raw materials."

Canadian dollar: It's likely to fall, at least temporarily, as Japan repatriates its funds from abroad.

Interest rates: Will also fall, reflecting the initial slowdown in global growth and a possible flow of funds from higher-risk assets like stocks into bonds.

Insurance stocks will take a hit: None of Canada's top insurance firms are in the property and casualty (P&C) business, notes Cooper. But some have exposure to the Japanese stock market, which plunged 1.7 per cent after Friday's quake.

Perhaps that's why shares of Manulife, Sun Life and Great-West Life, among others, all dipped on Friday.

"In addition, as the cost estimates of the disaster grow, we could see P&C insurance companies dumping their holdings of stocks and bonds to raise cash to pay the mounting claims," she adds.

"The heaviest selling pressure is likely to be in long-dated corporate bonds (used for actuarial matching purposes) plus dividend paying stocks."

Money flows: Another effect will be large volumes of money moving across the globe, says Cooper.

"We're already seeing the Japanese yen rally against the U.S. dollar as insurance companies repatriate funds ahead of claims rolling in."

Banks: Canadian bank exposure to Japan is negligible, says Cooper, while U.S. bank exposure is more than $300 billion.

European banks stand to suffer an even bigger hit if Japan's stock market continues to weaken, however. Europe's banks hold more than $500 billion of Japanese assets, with France ($163 billion), Britain ($147 billion) and Switzerland ($90 billion) leading the pack.

glamphier@edmontonjournal.com