Thursday, September 08, 2005
What will the Effect on GDP be for Katrina?
From Adam Samwick:
I'm not sure I can agree. I think that there will be three effects:Significant but not Overwhelming
So says the Congressional Budget Office in its preliminary report on the likely economic impact of Hurricane Katrina on economic growth.
1. The rise in energy prices is equivalent to at least a $10 rise and if you add in natural gas, I think you could easily argue that this is effectively the same as a $20 rise. This could dampen GDP by 1%.
2. The unemployment and productivity loss due to jobs and businesses just being obliterated. Assuming that this is somewhere in the neighborhood of the CBO's 400,000 jobs (I think this is a low estimate)., they only suggest this represents between 1/2 and 1%, but I think that is way too optimistic. I think you could easily see and impact of 2%, but let's assume 1% for the sake of discussion. I don't see how you escape some collateral damage in the agricultural segments so I think you have to say that 1% is low.
3. Finally, consumer and investory confidence could be shaken. If this effect is moderately large then rather than the outcome could be a mild recession.
Depending on what you think about a short mild recession with another very slow employment recovery, that
may or may not qualify for "significant, but not overwhelming".
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