Katrina 'set to slow US economy'
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Katrina 'set to slow US economy'

BBC News | September 8, 2005

US growth is likely to slow in the remaining months of this year because of Hurricane Katrina's destruction, US Treasury Secretary John Snow says.

Mr Snow forecast that as much as 0.5% may be knocked off the US's annual gross domestic product (GDP).

The US, the world's largest economy, had been expected to grow by close to 3.5% this year.

However, that was before Katrina blew ashore, killing thousands and causing damages of close to $100bn (£55bn).

Oil production facilities in the Gulf of Mexico were hit hard and the subsequent surge in crude and petrol prices are likely to brake US growth, Mr Snow said.

"It would seem to make sense to think that we could see a loss of GDP growth rate in the quarters ahead of a half a percent or so," Mr Snow said late on Tuesday.

See-saw effect

The concern is that consumers will spend less in shops as they have to pay more for fuel and heating, while companies will either have to pass on their higher costs or let them eat into their profits, analysts said.

Mr Snow's comments were echoing an earlier report from the Organisation for Economic Co-operation and Development (OECD).

According to the economic think-tank, high world oil prices are here to stay and the price shocks pose a threat to key economies such as the US, UK and Germany.

Growth in the US might "somewhat more subdued" in the second half of 2005, the OECD said.

Despite the concerns, the US is well placed for growth and any slowdown should be short-lived.

Mr Snow said that he expected growth to pick up again in 2006, adding that the reconstruction and repair effort following Katrina would prove to be a powerful economic stimulus.

GDP growth in 2006 should get a boost of 0.5% from rebuilding, Mr Snow estimated.

 

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