How Much Is Hurricane Harvey Going to Cost?

Forex traders know that the economic status of a country affects the value of its currency. Natural disasters of epic proportions are hitting the USA with hurricane Harvey soon to be followed by more powerful hurricane Irma. Harvey has come and gone so how much is hurricane Harvey going to cost and how much will that hurt the dollar? And what happens if Irma as similarly destructive? Newsweek posed the question while the storm was still in process how much will hurricane Harvey cost?

More than $3 billion in disaster relief funding at the Federal Emergency Management Agency is quickly being drained away, according to the agency. During a White House press conference Monday, Trump said that the funding is enough for the current state of emergency. But he added that he will soon work to get an aid package similar to those passed after Hurricane Katrina and Superstorm Sandy.

Federal spending on those disasters totaled $120 billion and $48 billion, respectively.

The storm will also have a wider impact on the economy because Texas is a center of the oil and gas and chemicals industries. These make up about half of the region’s exports.

Fortune quoted experts as estimating the total cost to the government to be closer to $180 billion. If Irma comes anywhere close these two hurricanes comprise natural and economic disasters.  But the immediate costs of recovery do not take in lost economic output. Business Insider looks at the true cost of hurricane Harvey.

It will take several months to work out the full impact of Hurricane Harvey on the US economy.

“We expect the effects of Harvey to be substantial and lasting,” UBS economists said in a note. They added that it’s difficult to forecast the full impact, even by comparing this to previous hurricanes, because each one is unique.

Economic output will fall and jobless claims will rise. However, in the recovery phase economic output will recover and jobs will be added. From this viewpoint the effects on the economic will be short term and the effects on the dollar likewise limited to a few months to a year.

How about Irma?

The problem with Irma is the growth that Florida has experienced in the last couple of decades. The last category 5 hurricane to hit Florida was Andrew in 1992. It destroyed 63,000 homes and killed 65 people. Damage came to about $25 billion. Today estimates of damage in the same area from a category 5 storm range from $100 to $200 billion.

Not only are hurricanes stronger this year but the storm surge that drives water inland is stronger. According a New York Times article about the cost of hurricane Irma almost half the losses if Irma hits with full force will not be covered by insurance.

Swiss Re estimates that a storm like the Great Miami Hurricane of 1926 would inflict more than $200 billion in damage today if it struck Miami and Miami Beach directly – exceeding the $160 billion in damage caused by Hurricane Katrina in 2005, adjusted for inflation. (Officials are still calculating the cost of Hurricane Harvey to Texas, but estimates today range as high as $180 billion.)

Nearly $80 billion of those potential losses in Florida would not be covered by insurance, the Swiss Re report said, which would “undoubtedly” affect South Florida’s economic growth “over several years, hindering its capability to recover.”

It is no surprise that these storms and the threat of more are driving the dollar down.