Cost to US economy could be ten times greater than 9/11
London Independent | September 8, 2005
By Rupert Cornwell
Hurricane Katrina will be by far the costliest disaster in United States history, requiring $150bn (£81bn) to $200bn in relief, clean-up and reconstruction spending by the federal government, and causing the short-term loss of some 400,000 jobs.
This desolate picture emerges from preliminary estimates circulating on Capitol Hill and at the White House. Although the figures are highly tentative, it is already clear that the damage from the storm will eclipse the $20bn bill for the 11 September terrorist attacks and the $25bn losses after Hurricane Andrew in southern Florida in 1992 - hitherto the most expensive natural disaster.
In a first study, the authoritative Congressional Budget Office warned that the storm and its aftermath could lop up to 1 per cent off growth in the second half of 2005, which had been forecast at around 3.5 per cent. This implies lost output of around $55bn, based on a US gross domestic product of $11trn - a "significant but not overwhelming impact", the report says.
The CBO says the storm will cost 400,000 Americans their jobs but this could be offset when reconstruction work gets into full swing, boosting the southern economy in particular.
The financial ripples of Katrina will be massive. Congress has already approved an initial $10.5bn emergency relief package, but President George Bush is expected to seek a further $40bn this week, and possibly as much again later this year or early in 2006.
This virtually guarantees that the federal budget deficit will balloon again. In July, the White House was predicting that the fiscal 2005 deficit would drop to $333bn, from a record $412bn the previous year.
But now, with relief spending running at $2bn a day, those hopes will be dashed. Next year's deficit is likely to far exceed the $341bn predicted two months ago.
The economic repercussions will spread even wider. Oil production in the Gulf, accounting for 25 per cent of US output, is now back up to 50 per cent of capacity, after being 98 per cent shut down by the storm, while politically sensitive petrol prices, after soaring to more than $3 a gallon, will start to decline.
But it is not clear how badly shipping lanes on the lower Mississippi river and the port of New Orleans - key transit points for US agricultural exports and imports of fuel and other materials -have been damaged.
In New Orleans alone, the devastation is close to unimaginable. Between 140,000 and 160,000 homes are uninhabitable and may have to be entirely rebuilt. The storm has created 90 million tons of solid waste and debris, some of it toxic. Other ravaged cities such as Biloxi and Gulfport in Mississippi will require billions of dollars of reconstruction spending.
So huge is the overall task of rebuilding that some congressmen are urging President Bush to set up a separate new entity, along the lines of the Lower Manhattan Corporation, set up after the 9/11 attacks.
* $150bn: estimated cost of relief and recovery
* $2bn: daily cost of relief
* $20bn-$35bn: estimated total insurance losses
* $100bn: value of flooded property
* $40bn-$50bn: White House emergency budget request for clean-up
* $600m: damage caused by Katrina to BellSouth phone network