One of the major events affecting the world right now is the tropical cyclone in North America known as Hurricane Sandy. Hurricane Sandy was the largest ever Atlantic hurricane by diameter and affected many parts of the Caribbean and Mid-Atlantic including the countries of Jamaica, Haiti, Cuba, the Bahamas and the United States. Early estimates vary significantly, but most suggest total economic damages attributable to the storm to be over $50 billion, which would make Sandy one of the most destructive hurricanes on record. As of the publication of this post, over 150 fatalities have been confirmed as a result of the storm. The majority of damage from the disaster occurred on the United States east coast, where Hurricane Sandy made landfall in New Jersey and New York City. The impact on the economy from this disaster can be enormous, as natural disasters have been proven to drop GDP and economic growth significantly. The impacts due to this devastation in the world’s largest economy will have a profound impact on international business.

The official cost due to the hurricane is likely to be much higher in the next few weeks, as more damages are discovered. Experts are predicting property damages to exceed $20 billion, with another $10-$30 billion more in lost business, making it one of the costliest natural disasters in the history of the world’s third most populous nation. The overall region that Sandy struck in the US contains about 30% of the nation’s population and accounts for approximately a third of its economic output; the New York metro region - where the majority of damages took place - produces about 10% of U.S. economic output. Surprisingly, some economists believe that the devastation will not affect the U.S. economy much, as a slower economy now will be matched by reconstruction efforts over time. The impacts to international trade are yet to be seen, as shipping and business travel has been suspended in the region.

Businesses in affected regions have been devastated by the storm. Not only did Sandy destroy many office buildings and factories, but it will also have a lasting negative impact on lost business and decreased industrial production. Industries that risk losing the most business due to the hurricane are airlines, restaurants, and retailers. The international airline industry had over 15,000 flights grounded due to the weather and over 8 million US customers were without power. Retailers and restaurants will draw fewer customers near the beginning of the critical holiday season and factories will decrease output to coincide with a dip in consumer demand. Other industries such as construction tend to get a boost after natural disasters as homeowners, businesses, and municipalities repair and rebuild after the wreckage.

Damages in the Caribbean were less dramatic and only accounted for 1% of total damages. The storm was the first hurricane to directly hit the Jamaican mainland in the past 24 years, causing $16.5 million in damages. Haiti, still recovering from the 2010 earthquake, had 200,000 left homeless, over 50 residents killed and dozens left missing. The majority of property damages in the Caribbean took place in the Bahamas ($300M in damages). The U.S. took the brunt of damages; this is not to say that the economies in the Caribbean will not feel similar effects from the storm.

The negative effects from Hurricane Sandy can be felt throughout the world in today’s ever connected global economy. I do not believe that this catastrophe will cause the US economy, or the fragile world economy for that matter, to drive into recession, but that is yet to be seen. Widespread destruction can also create economic possibilities because it provides the stage to build new and efficient infrastructure, creating a more productive and promising economic future. Hopefully efforts for restoration will begin promptly and mitigate the decrease in economic output from the Western Hemisphere. It will be a long road to recovery, but one that is sure to take place.

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