The economic damage from Hurricane Milton

As of: October 11, 2024 6:02 a.m

Hurricane Milton could go down in history as one of the costliest of its kind. According to experts, it is also likely to significantly reduce the USA’s economic performance.

Angela Göpfert

Hurricane “Milton” leaves a trail of destruction on its path through Florida – in addition to the danger to life and limb, experts also expect serious property damage. According to an estimate by analysts at the rating agency Morningstar DBRS, the insurance industry could face insurance losses of between $60 billion and $100 billion.

Katrina is the most expensive hurricane to date

“Milton” could be one of the most expensive hurricanes to date. So far, Hurricane Katrina, which devastated the USA and New Orleans in 2005, has topped this inglorious ranking: Katrina caused insured damages amounting to 99.8 billion dollars, and the total economic damages even amounted to 201 billion dollars Dollar.

This emerges from calculations by Munich Re for the years 1980 to 2023, which is the world’s largest reinsurer tagesschau.de made available upon request. In second place is Hurricane Harvey (2017), which caused economic damage amounting to $109 billion; the insured losses amounted to $38.3 billion.

Hurricane “Ian” (2022) is just behind with overall economic damage of $108 billion; At $64.3 billion, the insured losses were significantly higher than with “Harvey”. As a reminder, “Ian” was a Category 4 hurricane that also made landfall in western Florida, with extreme winds, torrential rain and a storm surge. Hurricane Milton, on the other hand, was originally classified in the highest category 5 and ultimately made landfall at force 3.

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The five costliest hurricanes

Fewer economic performance, more unemployed

“Milton” is not only likely to have caused extremely high overall economic (and insured) damage – the impact on US economic performance is also likely to be significant. About 2.8 percent of the world’s largest economy’s gross domestic product (GDP) was directly affected by “Milton,” said Ryan Sweet, chief U.S. economist at Oxford Economics.

Dana Peterson, chief economist at the nonprofit think tank Conference Board, is also convinced that the storm could have a short-term impact on economic data such as GDP and unemployment. These economic consequences can usually be observed within a month or within a quarter, explained Peterson in the “Morning Brief” on yahoo!finance.

“Milton” will significantly reduce US GDP

Gregory Daco, chief economist at management consultancy EY, calculates that “Milton” will reduce real GDP growth in the USA by an estimated 0.2 to 0.4 percentage points in the fourth quarter. “Florida, which is most directly affected, could see its gross domestic product growth decline by three to four percentage points in the fourth quarter.”

It is important to understand that the economic damage – reflected in the loss of assets such as homes, businesses, vehicles and industrial plants – and the impact on GDP are two different things. The value of the lost assets does not affect GDP – but the reduction in spending on goods and services caused by the hurricane does.

A sharp decline in tourism in Florida as a result

Which sectors will be most affected? According to Conference Board economist Peterson, the transportation sector in particular is likely to suffer. EY expert Daco sees tourism in Florida in particular, a key driver of the state’s economy, facing a severe slump. He points to canceled trips and flights as well as the damaged infrastructure.

But that’s not all: “In the energy sector, there could be closures or slowdowns in oil production in the Gulf region.” The construction sector is also likely to hit the brakes, with a decline in new home sales and housing starts predicted, Daco said.

What broken windows have to do with “Milton”.

But won’t the subsequent reconstruction also trigger a temporary boom in the construction industry and thus make up for the economic damage? In this context, economists like to refer to the so-called “broken window fallacy”.

Accordingly, it is wrong to assume that the destruction of goods results in constant or even increasing overall economic benefits. The French economist Frédéric Bastiat was the first to argue against this error in his “Parable of the Broken Window”: This does not take into account the opportunity costs of the resources used to repair the damage when money is spent on repairing broken objects and not on new goods and services is issued.

EY economist Daco is also convinced that the reconstruction efforts will result in higher expenditure. “But the economic gains will be spread out over time and are unlikely to offset the loss of economic output caused by the storm.”

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