Gathering storm

Natural disasters have an uncanny habit of boosting economies, but at what cost in the long term?

Wildfires are sweeping Siberia, California and Oregon. Blazes in Turkey and Italy are forcing evacuations as property is left to burn so firefighters can focus on saving lives.

More than 300 people have been killed by floods in China’s Henan province, with horrifying images of water rising in underground train carriages.

The floods that swept through Belgium and Germany’s industrial heartland of North Rhine-westphalia and Rhineland-palatinate last month claimed almost 200 lives.

Amid scenes of such carnage and misery, it can seem impossible to imagine any upside, and heartless to consider the possibility.

Yet when it comes to the economy, natural disasters often bring a surreal boost, says economist Carsten Brzeski at ING. “The bitter irony of these kinds of natural disasters often is that the rebuilding of homes and infrastructure could have a positive impact on GDP growth going forward,” he says, on Germany’s floods.

Buildings must be cleaned and repaired, cars towed away and replaced, possessions cleared out and bought afresh. This generates economic activity as workers are hired and shops make sales, then spend that money in turn. Hence the apparent boost. But to count this activity as a positive is to assume the money spent on repairs would have stayed under the mattress instead of being spent elsewhere.

The unfortunate inhabitants of North Rhine-westphalia’s towns and cities should have had that money to spend on something they wanted, rather than replacing that which they already had.

UBS analysts estimate the bill for insurers at $6bn (£4.3bn).

Brzeski notes this underestimates the total cost: “Only some 50pc of the people actually were insured and the damage to electricity networks and the railroad system will also be high.”

Disasters also prompt more spending on prevention. In the US, Michael Young at Risk Management Solutions says areas hit with frequent wildfires have developed private fire brigades and new standards for homes to cut rates of destruction, coming with a typical construction cost of up to $75,000 per home.

Across an economy, the numbers look worse as disasters become more frequent, says Ian Hurst at the National Institute of Economic and Social Research.

“The problem comes if they become frequent enough to overcome the rebuilding ability of a country. The Philippines keeps getting hit so often the economy doesn’t have a chance to rebuild,” he says.

Extreme weather is set to get more frequent. Britain last year suffered two of the three wettest days on records dating back to 1891, according to the Met Office. Two named storms arrived just one week apart in February 2020, causing widespread flooding. The south of England experienced “one of

‘The problem comes if [disasters] become frequent enough to overcome the rebuilding of a country’

‘You could envisage a situation where by 2050 it is impossible to get insurance for flooding for a basement flat in London’

the most significant heatwaves of the last 60 years”.

The Met Office says this shows “climate change is already being felt across the UK”. Plans to get to net zero carbon emissions remain embryonic, but are set to be extremely expensive.

The Climate Change Committee (CCC) puts the bill at £1.4trillion by 2050. And it will take decades to make any difference to the climate.

In the meantime we need to adapt. “High temperatures can cause railway tracks to buckle, electricity cables to sag, signalling equipment to overheat and fail, and road tarmac to soften and rut. Data centres are vulnerable to flood, high winds, wildfire and droughts as well as a loss of supporting power supply,” says the CCC.

Cost estimates are hard to come by, but a study commissioned by the CCC put the risk to infrastructure from river and groundwater flooding alone at billions of pounds per year, risks to health from hot weather at a similar level, and floods to businesses also in the same ballpark. For housing, adaptation means updating planning guidance to avoid building in floodprone areas. Even as buildings are constructed with better insulation to use less energy, they also need to avoid overheating in summer. Some changes are low cost – putting electric sockets higher up on walls to avoid floodwater. But others are more expensive.

The CCC lists 34 “priority areas” for adaptation, but says the UK has only made improvements in five so far.

These include allocating £5.2bn for river and coastal flood defences.

Cities, such as London, can afford to build ever more protections against flooding. Its Thames Barrier is used regularly, and the Thames Estuary 2100 plan envisages potential new barriers. Even then it only offers partial defence: rain can strike anywhere. Parts of London’s transport network ground to a halt last month as stations were overwhelmed by rainwater. Ambulances were diverted and surgeries cancelled as a hospital flooded in the capital’s north east.

“Torrential downpours are very very hard to defend against,” says James Nixon at Oxford Economics. “If those kinds of events become more frequent, you could envisage a situation where by 2050 it is impossible to get insurance for flooding for a basement flat in parts of London.”

For smaller towns and villages the risk is more existential, says Bob Ward at the Grantham Research Institute of the London School of Economics.

“There are going to be some areas that simply become unviable because the cost of this is too difficult,” he says.

“It is most often with smaller communities where the cost of building a flood wall is huge compared to the economic activity which goes on there.”

Fairbourne, a Victorian seaside town on the Gwynedd coast, faces just such a threat. Natural Resources Wales (NRW) will only support Fairbourne’s sea defences until the 2050s, given the prospect of rising sea levels and groundwater levels.

Ultimately residents face the prospect of having to move – though currently with little information on when, or compensation owed for their loss of property. Fairbourne is effectively a test case for other locations facing threats from rising sea levels and inland floods.

Over the coming decades NRW plans to gradually cut the number of sites where it will “hold the line” against the tide, shifting scores to “managed realignment” and then “no active intervention” as costs become too high.

Britain’s big cities are not yet at risk but Ward points to Miami, Mumbai and Shanghai as low-lying coastal cities exposed to hurricanes and typhoons.

“If you look at Miami, there is a city that is really struggling. Sea level rise already means it floods more regularly through high tides,” he says, adding that the heavy reliance on state-backed insurance will threaten the financial stability of the state of Florida in the event of a direct strike. “There will come a point where people have to think ‘is it sensible to have a major city based in such a vulnerable place?’”

A future of expensive retrofitting, rebuilding and – eventually – mass migration is on the cards.