How Will Hurricane Sandy Affect Economic Growth?

Early estimates of the damage caused by Hurricane Sandy have ranged from $20 billion up to $50 billion, with about $8 billion covered by insurance and the rest foisted upon governments in the form of destroyed infrastructure. According to an analysis by economists at IHS Global Insights, Hurricane Sandy may knock up to 0.6 percent off of GDP growth in the 4th quarter of this year:

On a national scale, $30 billion to $50 billion in economics losses would represent about 0.2% to 0.3% of nominal GDP. Part of these losses will eventually be made up by reconstruction activity, but it would be naïve to put forward the view that a hurricane is in some sense a stimulus for the economy. There’s no guarantee that reconstruction activity will be extra activity, on top of what would otherwise have occurred, rather than a substitute for that activity. […]

The effect on growth for the fourth quarter will not be catastrophic but might still be noticeable, especially in an economy with little momentum anyway. Suppose that the affected regions lose just 25% of their overall output for two days that is not recoverable later. That would knock about $25 billion annualized ($6 billion actual) off GDP, and could take as much as 0.6 percentage points off annualized fourth-quarter real GDP growth rate.

Economists at Wells Fargo, meanwhile, estimate that “the storm may reduce gross domestic product by as much as 0.2 percentage points this quarter.” Economists at Moody’s Analytics, said the economic effect will be “noticeable but temporary.” “While natural disasters take a large initial toll on the economy,” Moody’s Ryan Sweet said, “they usually generate some extra activity afterward. We expect any lost output this week from Hurricane Sandy will be made up in subsequent weeks, minimizing the effect on fourth quarter GDP.”