Name: How do hurricanes affect the economy? | CNBC Explains
Uploaded: 2019-01-07T10:18:54.000Z
Duration: 5 min 36 s
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The immediate impact of these powerful hurricanes was devastating.

Destroyed homes, knocked-out power grids and depleted resources.

So how do you measure the longer-term economic impact of a hurricane?

Between 1950 and 2016, 4,597 tropical cyclones around the world passed within 100 miles of a city,

affecting 3,113 cities and 132 countries or territories.

New research from the International Monetary Fund, the IMF, uses a complex formula to measure

the economic impact of tropical cyclones.

Depending on where you live, you might call a tropical cyclone a hurricane or a typhoon,

The report looks at how tropical cyclones affect something called GDP per capita,

which is basically the amount of goods produced and services provided in a country,

The IMF measured the longer-term effects of tropical cyclones on GDP per capita

for a period of seven years after the storm struck.

It found output was almost 1% lower than if the storm hadn't happened.

Small states and islands, which are generally more exposed to tropical cyclones,

had a bigger negative impact losing 2% or more of GDP per capita.

One or two percent may not seem like a lot, but depending on the economy,

we could be talking about millions or even billions of dollars.

Calculating the economic impact of these storms can be tough.

There are a lot of variables to consider, like wind, precipitation patterns and population.

That's why estimates vary on how much storms affect economic growth.

The National Oceanic and Atmospheric Administration estimates that since 1980, the United States has

sustained 212 weather disasters where the overall cost reached or exceeded $1 billion.

The total tab of these events combined was a whopping $1.2 trillion.

And that number is sure to escalate from Hurricanes Harvey, Irma and Maria.

Initial cost estimates for Harvey in Texas are between $70 and $108 billion.

Hurricane Katrina in New Orleans in 2005 had the most significant economic impact

with an estimated price tag of roughly $160 billion.

Here's a chart of jobs in New Orleans in the wake of Katrina.

Employment plunged right after the hurricane in September 2005,

but even 10 months after the storm, the economy averaged 95,000 fewer jobs than the year before.

Some of the biggest losses came from the tourism and shipping sectors.

Besides job losses, a storm's impact can be measured in a range of other economic indicators.

After Hurricanes Harvey and Irma, consumer confidence dipped in Texas and Florida

as Americans felt less optimistic about their outlook for the economy.

Storms can cause huge losses in the farming industry when crops are destroyed.

And of course property damages, transportation disruptions

and business closures all bring major economic costs.

These are all reasons why economists predict GDP will drop in the aftermath of a storm.

Growth often rebounds in the following quarters when reconstruction efforts get underway

and states or countries receive federal aid and insurance payouts.

But it still takes a long time to clean up the economic damage from a storm.

Research shows that even after 20 years, a country's economy has not fully recovered from the shock.

The IMF says climate change could make hurricanes even more frequent, and costly, in the years ahead.

The report analyzed the relationship between natural disasters and changes in temperature.

It found that tropical cyclones could become more common around the world

So what can be done to mitigate some of the economic damage of these disasters?

The IMF says infrastructure, like dams, seawalls and irrigation systems, is key.

It's been credited with 'saving' London from high tides and storm surges on multiple occasions.

In Malaysia, the government built a dual-purpose tunnel that would combat flash floods and help with traffic.

After Katrina, the U.S. Army Corps of Engineers built a $14.5 billion flood-protection system

in southeast Louisiana, which includes a nearly two mile long, 26-foot-tall barrier visible from outer space.

And while these engineering marvels better prepare a city for flooding, a bigger storm can always strike.

Which is why other preventative measures are also recommended,

like stronger building laws, land use planning, zoning rules or early warning systems.

Spreading out the financial burden can also help countries cope.

For example, 17 countries in the Caribbean have contributed to a joint insurance pool.

If a hurricane, flood or earthquake hits one of these countries,

its government can tap into the fund to quickly respond in an emergency.

The IMF suggests the international community can play an active role in helping countries,

especially low-income nations, respond to weather shocks.

It says this is part of a sound economic policy and an essential humanitarian response.