July 14th, 2011
07:00 AM GMT
(CNN) – The personal and societal impact of February’s Christchurch earthquake may be nearly impossible to quantify. The economic impact is a different story. Today's data from Statistics New Zealand reveals the economy grew by a solid 0.8% in the first quarter, despite the earthquake.
"While some businesses in Christchurch were adversely affected, the vast majority were able to continue operating, and the earthquake resulted in some activity that would not normally have taken place," national accounts manager Rachael Milicich said in a released statement.
Less than 1% of the nation’s commercial property was damaged in the disaster and few large businesses ceased operations. The overall GDP reading was higher than most analysts had expected.
The readings today out of New Zealand beg the question: What is the overall impact of a natural disaster on GDP growth?
A common belief is that short-term economic hits after a disaster – even those as large as this year’s earthquake and tsunami in Japan or Hurricane Katrina in the U.S. in 2005 – are more than offset by the reconstruction boom that follows. Recent studies, however, show a much more complicated picture.
The nature of the disaster and the size of the victim economy are key, researchers say. In 2008, Ilan Noy found that in the short-term, natural disasters do have a negative impact on macroeconomic growth. Digging deeper, he found that developing countries or small ones face a much greater shock to their economies in comparison to richer, larger ones. So the same size disaster will have a much larger economy impact in an emerging economy than in say, the United States or Japan.
Noy also co-authored a 2010 study that found that only in extremely large disasters was there any significant impact on economic output. In fact, when the study’s authors stripped away cases where a natural disaster was followed by radical political revolution (Iran and Nicaragua in the 1970s), they find no significant macroeconomic effects at all to natural disasters.
A 2009 analysis from Claudio Raddatz of the World Bank came to a different conclusion. He found that “disasters have modest but economically meaningful … consequences,” with economic output declining by about 1%. Climate-related disasters, like droughts, have a particularly strong impact, Raddatz wrote.
For residents of Christchurch, however, the long-term macroeconomic analysis means little in light of the current challenges, like what to do with their condemned homes or damaged landmarks as covered by TVNZ’s strong reporting here and here.
More ominous still is a conclusion in the World Bank report: That incidences of natural disasters have increased by 30% since the 1960s. And risk-modeling companies have raised the likelihood of a Katrina-like event happening once every 20 years, rather than once every 40 years.
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