July 14th, 2011
07:00 AM GMT
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(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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soundoff (14 Responses)
  1. DC

    What are you proposing CNN? Blow up the world to boost GDP?

    July 14, 2011 at 8:07 am |
  2. amazed

    let's not wait for natural disasters. let's employ people to destroy structures that would eventually have been destroyed anyway, probably. then we can employ others to come in and rebuild everything. this creates twice the economic activity of a disaster itself. i can't think of any more productive way than that to deploy labor or capital. can you?

    July 14, 2011 at 12:19 pm |
  3. eddie2010

    Increased economic activity =/= growth

    July 14, 2011 at 6:09 pm |
  4. Maxim Chepelev

    Since the countless number of different ways there is to measure economic growth we can definitely find one of them that shows economic growth during the instinctions of the dinosaurs. I imagine excited I would feel having lost my relatives to have a 0.8% growth

    July 14, 2011 at 11:19 pm |
  5. Simon

    This article is a tad misleading. The NZ .08% growth is from very strong export performance in the quarter, the GDP growth would have probably been around 1.2% for the quarter if the Christchurch quake had not happened. The economic benefits from re-building haven't really started yet due to ongoing aftershocks.

    It also pays to remember 75% of Christchurch homes are either no or have light damage, while most CBD businesses have adapted to operating in the suburbs for now. Like most disasters the media focus on the damage not whats "not damaged", however the NZ economy has demonstrated remarkable resilience.

    July 14, 2011 at 11:32 pm |
  6. Dan Williams

    Bastiat debunked this lunacy 150 years ago.

    July 15, 2011 at 2:26 pm |
  7. inwarresolution

    The article actually corrects a common myth: the broken window myth. It's the idea that destruction creates growth. It doesn't. What it does is redirect resources that would have gone into new ventures and growth into "defensive" spending that is unproductive. Why does this matter? Because economic growth matters to the length and quality of our lives. http://bit.ly/qHgJUq

    July 15, 2011 at 6:29 pm |
  8. SnowVail

    Like wars? For permanent sense, loss is a loss. Nothing can boost back the loss. Money can be made or lost for any reason anytime, but think of the great minds Europe lost forever because of the World War II. Something lost is forever lost. New Zealand needs revival of the Christ's Church.

    July 16, 2011 at 5:24 am |
  9. Obverser

    I think the title is immoral even it is to creat work or whatever!!

    The main point here is that something has been destroyed and something required to renew and put back, so it is an extra cost for the nation ok it is to creat more jobs (if one looks at the other points of view that someone else get the jobs...)At the end of the day the big picture is we are back to basic..

    July 17, 2011 at 1:10 pm |
  10. Obverser

    The main point here is that something has been destroyed and something required to renew and put back, so it is an extra cost for the nation ok it is to creat more jobs (if one looks at the other points of view that someone else get the jobs...)At the end of the day the big picture is we are back to basic..

    July 17, 2011 at 1:11 pm |
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    Excellent question

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