Capital Economics: Sandy economic impact likely to be modest

Hurricane Damage Storm Rain 480

Hurricane Sandy is likely to have a large impact on US economy initially, but is likely to have a “very modest” overall economic impact, according to Capital Economics.

Chief US economist Paul Ashworth says the 12 states in the affected regions – New England and the Mideast – account for 23 per cent of the national GDP.

The economist says if all output in both regions was lost during the hurricane – dubbed Frankenstorm – it would equate to a 0.7 per cent loss to quarterly GDP, leaving an annualised GDP figure of 2.1 per cent.

However, Ashworth says the estimate overstates the loss of output as not all of the east coast was affected.

He says: “The flooding and power outages across large parts of the east coast mean that Hurricane Sandy will undoubtedly hit economic output in the short-term.

“Some of that output will be made up before the end of the current quarter, however, and when we factor in the boost to GDP growth from the clean up, the overall economic impact is likely to be very modest.”

Ashworth says clean-up activity could even have a positive overall impact on GDP, with much of the costs to be born by the largely European-based global reinsurers.

The total cost of the storm is estimated between $10bn and $20bn.

He adds: “Unlike the closures after the 9/11 attacks, the storm and the shut down of the stock market were known about in advance, allowing investors time toadjust positions.”

The economist warns the release of October’s payrolls figures and the presidential election could lead to the potential for some volatility when markets reopen, but stock futures do not point to a slump.