>>abirached: this week on world business... >>after suffering one of the largest earthquakes in its history, we look at the long term impact to japan's already stagnant economy. >>if we move well along the way to that more aggressive stance, i think the economy can bounce back relatively well. if we do not move toward that more aggressive stance, i think we'll be looking at several years of negative growth, worsening deflation, and probably worsening fiscal deficits as well. >>the pain in spain, we look at some of the key problems faced by this struggling european economy >>what i see is not good. i see stagnation, long period of stagnation. >>and india's rail network should be the envy of the world, but it is crumbling and losing money. >>they need to develop their infrastructure, they need to make more trains

like these >>abirached: hello and welcome. i'm raya abirached and this is world business, your weekly insight into the global business trends shaping our lives. the earthquake and tsunami that hit japan this year stunned the world and came as a huge blow to a country that is losing its economic prominence in the world. and the true scope of the tragedy is only just becoming clear. >>reporter: more than two months after the quake, tsunami, and nuclear plant disaster, a japanese official speaking to reporters was still expressing confidence about the pace of recovery. the economy, he says, is demonstrating its resilience...

>>yosano: the impact on production will be smaller than was at first thought. interrupted supply chains have recovered at a remarkable rate. far more swiftly than had been expected. >>reporter: government surveys show that over 90 percent of manufacturing affected by the disaster is set to be back online by summer. >>yosano said that japan's worst postwar crisis could lead to opportunity... but that's a theme analysts are skeptical of... >>feldman: we still have two large parties that are at first very, very competitive. really rather at each other's throats in the policy debates. and in addition, both parties themselves are split on many of the policy issues. so if one party is not united, and the other party is not united, how do you get a deal between the two of them? so i think the locals looked at that notion of a trigger forrevival and thought, it's a nice fantasy, but they don't expect it to be coming any time soon.

>>reporter: damage to supply chains, which triggered shortages in the auto and electronics sectors, is only one of the many stiff hurdles the world's third largest economy is having to overcome... repairing roads, bridges and other facilities - is estimated to cost as much as $300 billion. >>the march 11 disaster - known here as 3-11, has also taken a heavy toll on business investment andhousehold spending. factory production fell 15 percent and household spending was down almost nine percent in march - the sharpest declines on record. >>schulz: this is what we really had to learn after this disaster. it was not just the loss of the disaster. it was not even just the nuclear disaster, which came on top of the tsunami. it was really the reaction of the country. getting into shock, being shocked about future prospects, how things can be rebuilt, and this is a very, very big difference to the earthquakes we had beforehand. before there was shock and then immediate reconstruction. and this time is different.

>>reporter: tokyo electric power's prolonged struggle to stabilize fukushima daiichi nuclear plant continues to taint agricultural products. and the loss of reactors has cut the supply of available electricity for eastern japan, including tokyo... although individuals and companies have begun to conserve in preparation for a predicted 10 percent shortfall in power this summer, there is no certainty about whether supply will cover demand. >>yamamoto: what's holding down spending now is the nuclear accident and fears about radiation. somepeople are nervous about going outdoors. also, in order to fund disaster reconstruction, the government is likely to raise taxes, which is also depressing consumption. >>reporter: minister yosano, a fiscal hawk, says a hike in the sales - or consumption tax, now at five percent - is inevitable, if japan's fast-aging society is to stay on track to achieve a fiscal surplus by 2020...

>>yosano: level of consumption tax has to be raised. everyone knows. but how to do it is very, very difficult. how to do it without losing political support is more difficult but we will do it. >>craft: japan's political squabbling, disarray and lack of leadership could leave it rudderless in the medium to long term. analysts say japan needs a second disaster package of about $100 billion. that's about twice as large as the first emergency budget. so far, there are no clues as to how such a budget would be financed. >>feldman: if move well along the way to that more aggressive stance, i think the economy can bounceback relatively well. if we do not move toward that more aggressive stance, i think we'll be looking at several years of negative growth,

worsening deflation, and probably worsening fiscal deficits as well. so that's the area where i have my major concern. >>reporter: all told, the cost of the most expensive disaster in history and its repercussions, is calculated at four percent of gdp... analysts fear that japan's fractious political parties, under the widely disliked prime minister kan, won't put aside their differences long enough to put the economy back on solid footing. >>with portugal becoming the third eurozone country to need a financial bailout, its neighbour spainis determined not to follow. tough austerity measures have been introduced, but the country is still in terrible condition. growth for 2011 is predicted to barely top 1% and the country could be looking at 10 years of stagnation. >>reporter: a somber mood has settled across spain as the reality of recession

kicks in. >>pensioner: i see a dark future, a dark future. a lot of things have to change if we want to go back to the way we were living before. i don't see it happening." >>reporter: since the turn of the century spain enjoyed a boom, fuelled in part by a rapidly growingconstruction industry, that at one point accounted for 16 percent of gdp. but overreliance on the sector left spain seriously exposed when the crisis hit. >>garicano: this boom masked an underlying structural weakness in the economy, which is basically that the productivity hasn't been growing for 10to15 years. so you had an economy that looked like it was doing really very well, but the underlying issues weren't improving. >>suarez: for a long time spain was the biggest miracle in the european union. everybody would say spain is the best country; it is performing so well, better than countries like germany or france. the problem was that it was not real growth. >>reporter: at its peak

the industry employed an estimated 13 percent of the workforce; now as building sites fall silent, unemployment is a huge issue in spain. >>unemployed graduate: i can only tell you about what bothers me, and at this very moment unemployment affects me a lot. >>reporter: a fifth of spain's population is out of work. for the under 25s this figure rises to 43 percent. underemployment is also a problem. daniel rojos has been forced to settle for a low-paying traineeship. his girlfriend andrea is unemployed - life is a struggle. >>rojos: we expect that things are going to change in the near future, but right now it is impossible for us. we cannot afford to pay- not a mortgage, not to rent a house, we can't afford it. >>reporter: it's a serious problem for individuals and the country itself.

skilled workers are leaving the country, exacerbating spain's decline. telecom engineer helena casas, for example, is now looking for a job in germany. >>casas: here, in case you find something, you are offered short-term projects, which usually last months and then you are on the street again. the companies i have had a look at in germany offer medium to long term projects, and we are talking about 2 or 3 years at least, which gives you the chance to stabilize yourself, gain experience and then go back to your country having something consistent. >>reporter: economists also believe the education system in spain doesn't help. >>schwartz: people are not getting educated for what the economy wants. we don't have an apprenticeship system as you have in germany...so it is very worrying though people are too depressed for the present, i am depressed for the future. >>reporter: the spanish labour market is also extremely inflexible. it's virtually

impossible to fire permanent staff, making employers very reluctant to hire hampering the small businesses that couldkick start the economy. >>nestor sanchez owns a graphic design company in barcelona and would like to take on 2 more people,but cannot because of restrictive regulations. >>sanchez: if suddenly you don't have work to do, it's not the same to carry out a redundancy plan in a big company as in a small one. >>reporter: that issue remains to be addressed, but elsewhere the government is taking action. public spending has been reduced by nearly 8%; 9 billion dollars of investment spending has been slashed and civil servants pay cut by 5%. the country also raised the retirement age from 65 to 67. >>austerity measures that prompted protests on the streets of madrid. >>illane: my personal situation isn't bad,

but the situation for my daughter will be difficult. she is going to have to develop herself, to study like mad and yet she has no present and no future. >>reporter: and despite the reforms moody's downgraded spanish debt to aa2 in march. it's clear much more is needed to stop spain following portugal, ireland, greece, the so-called pigs, in getting a bailout from the eu and imf. >>reporter: if that happens the consequences could be disastrous. europe's 5th and the world's 12th largest economy, is the size of the other 3 pigs combined. >>suarez: it is difficult to think about a bailout of spain, because in a way spain is too big to fail, it's a country that if it fails in the next few months, it could really jeopardize the euro itself. >>reporter: yet the situation is not entirely bleak, one of spain's great strengths is its banking sector, which despite the woes of the rest

of the economy remains relatively intact. >>garicano: in spain the very biggest banks are very safe - santander bbva and la caixa - the fact that the largest part of the financial sector are healthy by everybody's accounting, even the most critical eyes would agree on that - means that we are not going to have a very big financial crisis...yes, we have similar problems but at a much smaller level that i don't think we will be next. >>reporter: a more likely outcome and in many ways a more challenging one for the country itself, isthe real possibility of a lost decade. >>ekaizer: what i see is not good. i see stagnation, long period of stagnation. i see a japanese labyrinth besides...with a very, very impoverished economy and a very peripheral position in europe. >>suarez: i'm optimistic about spain. i would say yes, in the long-term, because we have built the country in the 70s

and in the 80s in a very bad situation. so i think we can do it again...but i think it's going to take...i don't know, almost a decade. >>reporter: the challenges ahead are huge but the country has returned from similar if not quite so severe situations in the past. spain still has a strong banking sector, a stable political system and a resilient population. it would be unwise to write the country off just yet. >>abirached: still to come on world business... >>why indian travellers are turning from rail to runways as air travel gains ground on trains. >>and kite surfing may be exhilarating and spectacular but has a long way to go before it's acceptedby the mainstream >>struggling to take off... and the rest in just a moment

on world business... >>in an attempt to maintain economic growth and move itself forward in the 21st century, india is investing heavily in roads. but the country already has a huge established transport network in the form of its national railways. however this has been neglected and is crumbling and other forms of transport are stealing ahead. >>reporter: india has the biggest railway network under single management in the world. >>every year it moves more than 7 billion passengers and 350 million tonnes of freight. it's a greenform

of transport ideally suited to the 21st century. >> agnihotri: "it is much cheaper in terms of utilisation of fossil fuel, and fossil fuel is something which is very scarce in this world and any transport system which uses less fossil fuel has to beutilised by everybody and that is the reason why america and africa and china, everybody is going in for making more and more railway systems. because railway uses one sixth of the petroleum requirement compared to roads. so you can carry six times more traffic with the same petroleum product." >>reporter: indeed, around the world other countries are considering a push back to rail. pre crisisjapan had been testing a new breed of maglev trains, china is preparing for a huge investment in railways and even the us shifts 40 percent of freight by rail and is looking to expand the figure.

>>erera: rail freight is expected to become even more important. environmental concerns are leading a shift of freight from truck only, especially to truck-rail intermodal moves. there has been a lotof growth in that area recently. and in the economic recovery that's occurring now, intermodal freight is actually recovering faster than other types of freight in the us. >>reporter: a belief borne out by warren buffett's 26 billion dollar investment in the burlington northern santa fe railway. >>yet in india the trains are neglected and the system is creaking. >>construction started in the mid-1800s and rail was nationalized in the 1950s. this points control equipment was installed in 1932 and has seen better days. >>agnihotri: it faces the problem of funding. they only have to make a road and the trucks and everything else is brought by somebody else. in railways you not only make railway lines you have to provide for locomotives,

coaches, wagons, everything. so it is actually what i should say a very intensive utilisation of capital. >>reporter: the focus for the government in recent years has been on expanding the roads. it has embarked on a programme to build 15,000 kilometres of new roads at an estimated cost of 30 billion dollars. cheaper than improving the rail freight network, but perhaps only in the short term. >>mehrotra: over a long-distance transportation, roads can never match the cost benefits which the rail transportation gives. rail transportation will be at least 3 times cheaper than road transportation. >>reporter: there are plans to extend the rail network and build dedicated freight corridors connecting delhi and mumbai and the east but these are stagnating as political will seems to be lagging. >>expanding freight also impacts upon the millions

of passengers who still use the railways every day. >>chikermane: these essentially as you know are exclusive corridors will only carry freight which right now are inefficient because passenger traffic travels on the same lines and therefore freight has to wait, and therefore it slows down business and turn-around times. >>reporter: the railways have slipped. in 2006 they made a profit of 4.5 billion dollars. today theyspend over 110 rupees for every 100 they earn. >>passengers - the lifeblood of the business - pay fares frozen for almost a decade, but many would prefer better service instead. >>dridathi: they need to develop their infrastructure, they need to make more trains like these. andalso they need to increase the seating capacity because their tickets are not available, readily available, you need to book them in advance. >>reporter: and this could be the driving force behind a new development in india, the rise of internal flights.

>> seth: "people have started travelling by air who were travelling earlier by railroad. the airlines have tapped into that sort of market" >>reporter: with de-regulation and a recent explosion of low-cost airlines, air travel within india is booming. this january domestic passenger traffic was up 20 percent on the year before. >>at new delhi airport's recently opened terminal 3, it's not difficult to see why commuters might want to swap cramped slow trains for air travel. >>sengupta: i think let's begin. it's important that we start somewhere. it takes a long time to build infrastructure. >>vox pop 1: it's much better than before. >>vox pop 2: this is the best that we can do. >>vox pop 3: it's a splendid airport." >>vox pops 4 and 5: all the facilities very nice. hospitality is very nice. >>vox pop 6: good opportunities here. >>reporter: the new terminal cost 3 billion dollars to build and will handle 34 million passengers ayear. clearly its investors believe that air travel has a solid future in the country.

but with oilprices rising and stocks dwindling is this really the case in the long term. >>inderwildi: we'll reach peak oil at some point, that's the point where oil demand outstrips oil supply, and the smith school has just recently published a study in this. and if you are in such a scenario it will be troublesome to get enough oil. >>reporter: meaning that trains would once again be needed, but after years more of underinvestment it would be a very tough task to get them back on track. >>kitesurfing took off less than 15 years ago along the windy beaches near montpellier in france. the sport combines the thrills of surfing and flying and even has its own world championship tour, butfaces a few hurdles before it can develop into a mainstream sport. >>reporter: this strip of coastline in southern france is considered the birthplace of kitesurfing

or kiteboarding. it's not surprising. a cool combination of strong winds and hundreds of kilometresof sandy beaches provides a perfect backdrop for the sport. >>reporter: not surprisingly the tiny village of leucate is home to one of the legs of the professional kite riders association world tour the ten day long festival attracts around 150,000 fans. the downside is the downtime - no wind can mean a lot of waiting around for action. >>toscano: kiteboarding, it's been definitely an expanding sport. it started about 10 years ago, a little bit more maybe 12 and since then its just been growing at a fast rate. i mean right now i think it's starting to peak a little bit. its a very nice and spectacular sport once we have the conditions but because we have to wait

for the wind then that is the biggest constraint that it has on the growth and competition level. >>reporter: but when the conditions are good.... >>this is alex caizergues the fastest kitesurfer in the world - skimming the waves at more than 100kilometres an hour. >>60 competitors took part in this tour event, but with total prize money of just 60 thousand dollars none of them are exactly millionaires. >>travel and housing to kitesurfing hotspots in spain, germany and brazil are often paid for by sponsors, but there are just 20 kite surfers currently making a living full time from the sport. >>caizergues: sure i can make a living and its getting better and better every day. we've got like 20% more kite boarders every year so its still a growing sport and its still young. it's only ten years old. >>pulido: i am 17. i think

i earn quite good money for my age. i just bought a house now and i'm really happy because it has swimming pool and tennis, beach and everything so i'm happy. >>reporter: the sport still has the label 'extreme' attached to it - each year horrific incidents occur... kite surfers can be scooped up by a wild gust and literally buildings. now a lot of effort has been put into making the sport safer with strong harnesses and several release triggers to free yourself from the kite. and if you didn't learn to fly a kite as a kid you have a lot of catching up to do. >>civier: it's a sport that's not too complicated but it takes time to figure out so you have to go through kitesurfing school to understand the basics and what kind of equipment you need for whateverweather conditions you could face. when it come to price like a lot of sports there is quite a high price tag. the kite

on its own is around 1500 dollars and you need two to be able to handle all types of wind conditions. >>reporter: the industry is making efforts to make the sport more accessible - designing cheaper andlighter kites. and it is making a breakthrough - challenging windsurfing with less bulky equipment that offers far greater thrills out on the water. >>pendry: it's getting bigger all the time. it's been growing steadily for the last ten years and it's still growing so yeah, it's getting bigger and bigger, slowly replacing windsurfing - even if the windsurfers wont like that but that's what's happening. >>reporter: in fact a whole new industry has developed in kite surfing along the coast of southern france - from schools, stores to tiny board manufacturers known as shapers. don't be fooled by the artisan feel - these boards sell for over a thousand dollars each - buyers around the world like the retro look of these boards along with the personal touch

-stones and jewellery embedded in the wood. >>bedlewski: i can sell these boards where ever you can kite surf in other words where ever there isa sea or a lake and wind. with all that it's fine. it's all about the sensation of being able to fly and surf at the same time. it's what people have been dreaming about for a long time and now it's a reality. >>reporter: sensing a growing trend and the potential for hundreds of jobs and hundreds of thousandsof dollars of tourist revenue - even politicians have got involved. local bigwigs were trying to make the event, and the sport more of a money spinner. >>the regional council has ploughed over half a million dollars into the event because it sees a long term windfall. >>py: the surf industry is in constant movement and adapting all the time. one sport that did not even exist two years ago is paddle surfing. last year it really took off and will get even bigger. andin the future there will be other surfing sports and our job is to make sure

we know about them andmake sure they make leucate their home. >>reporter: the region has likes to boast it has the perfect outdoor stadium - when you already havewindy conditions 300 days a year - and sun all year around all you need to do - is add water. >>abirached: that's it for this week's world business. thanks for watching. we'll see you again atthe same time next week.