Will Recovery Spending be Able to Balance the Economic Damage Caused by Hurricane Sandy?

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For those living along the Atlantic Coast of the United States, it appears that the worst of Hurricane Sandy has passed. The total economic impact of the storm, however, remains uncertain.

Early estimates have predicted $5 to $10 billion in insured losses and another $10 to $20 billion in economic losses. Some economists, however, have estimated total damages as high as $45 billion.

It's easy to see how the larger number could become a reality. Millions of people in New Jersey, New York, and Connecticut, for example, are without power. This alone represents a huge cost. The gross domestic product of the region between Washington, DC and New York City is estimated to be around $2.5 trillion. This means that everyday this area is shutdown due to power outages and damage represents $10 billion in lost output.

Though such storms are undeniable tragedies, market economics does not always see the damages as a pure loss. In the case of Hurricane Katrina, for example, the cost of damages exceeded $100 billion but relief and rebuilding spending quickly made up the difference, leading to a negligible decline in the health of the national economy.

Early estimates for Sandy have placed recovery spending as high as $36 billion. Though it appears that would come up short, most reinsurance agencies—essentially the insurers of insurance companies—believe the storm will have only a minor impact on pricing for next year. It's still too soon to know what the final economic impact of the storm will be but this small insight is at least a promising indicator for the economy as a whole.

Tags: Global Climate Change | Global Warming Effects

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