How do hurricanes affect the economy? | CNBC Explains

Maria Irma Harvey. 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, but they’re all the same thing. 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, divided by its population. 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 as greenhouse gas emissions increase. 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. A good example is the Thames Barrier. 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. Hey guys, it’s Elizabeth. Thanks so much for watching. You should check out more of our videos, over here. We’re also taking your ideas for future CNBC Explains, so leave your suggestions in the comments section. And while you’re at it, subscribe to our channel. See ya!

9 thoughts on “How do hurricanes affect the economy? | CNBC Explains

  1. Well old saying – prevention is better than cure might make sense. There are lot study proving the relation between increasing frequency and impact of natural calamities to climate change. Every human have to be aware that our lives always correlate to environment around us. We have be to environmentally sensitive individuals and it “could” reduce the impact of these calamities not totally stopping it.

  2. I strongly agree that weather and the economy or money .. go hand in hand .. damn shame as Im almost positive that these storms were man made .. shame really

  3. If you keep worry about hurricane damaging houses, maybe you should become an inventor in the future and invent some materials that can help withstand houses from hurricanes. That means that the hurricanes can't capably destroy houses since the houses are strong enought resist the strong winds.

  4. If you kick an ant-hill, as many ants as possible immediately begin restoration process. However, destruction has an opposite impact on humans. It creates phenomenon known as unemployment because there is nothing to work on. Its hurricanes' fault that the world fails, this is what neo-liberals want us to believe in.

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