BBVA Research USA economists revised upward their estimate of the economic impact of Harvey, putting it at up to $111 billion, which would make it the second most costly natural disaster in recent U.S. history after Hurricane Katrina.
The economists’ previous estimate, released on Aug. 29 while parts of Houston were still underwater, was $60 billion. They indicated at the time that the figure could increase. In their newest brief, released Sept. 18, they also offer an estimate on the damages from Hurricane Irma, which hit Florida earlier this month. They say the economic cost to Florida could reach $52 billion.
The negative impact from such natural disasters tends to be large at first, but then economic activity can actually be positively affected as conditions normalize
The economists say that the negative impact from such natural disasters tends to be large at first, but then economic activity can actually be positively affected as conditions normalize so long as insurance and assistance funds are made available. Their latest Texas real GDP growth estimates track with that. They say it will be around 2.7 percent in 2017, down from their previous estimate of 4.3 percent, but then will rebound to 4.1 percent in 2018. Their 2018 estimate is actually higher than their previous prediction of 3.8 percent. For Florida, their real GDP growth forecast drops to 2.5 percent from 3.6 percent in 2017, but rebounds to 3.4 percent in 2018, a small uptick from their previous estimate of 3.3 percent.
At the national level, they expect the net economic impact to be small, and are maintaining their baseline forecast for GDP growth for the year at 2.1 percent.
One of the challenges the region will face, the economists say, will be maintaining economic attractiveness over the longer run, as Harvey could prompt people to move away or deter both future investment and migration, thereby reducing economic potential.
Read the BBVA Research USA brief here, which also includes an analysis of how the storms could affect the banking industry.