Hurricane Harvey: Houston could lose US$60bn in GDP

Written by Deborah Ritchie

The economy of the city of Houston, Texas could lose up to US$60 billion of GDP in the next year as result of flooding following Hurricane Harvey. The loss of economic output could potentially exceed the physical damage costs and insurance loss estimates, according to analysis from the Centre for Risk Studies at the Cambridge Judge Business School.

The Centre for Risk Studies analyses the effects of catastrophes on the economics of different regions of the world. It has applied its models to assess the amount of lost sales, revenues, and economic out that would be lost to the businesses in the region, and their trading partners, as a result of the extensive flooding of Houston.

Simon Ruffle, director of research and innovation at the Centre for Risk Studies, explains, “In addition to loss of human lives and physical destruction of property, the flooding will disrupt the city’s economy, which will in turn influence the region’s economy, with potential consequences for the US economy and internationally. The loss of expected output is the likely result of the closure of workplaces, the disruption of the labour force, the loss of power and water supply, the suspension of airport and port traffic, and additional consequential economic effects such as demand shock and post-event inflation.”

Houston: In figures (Source: Cambridge Judge Business School)

The Risk Centre assesses Houston as a highly resilient economy – capable of harnessing and attracting economic investment for recovery. Businesses are well able to repair much of their physical damage, and it is well-governed and socially cohesive.

These factors suggest that the economy is likely to bounce back within a year or two of the catastrophe, according to Ruffle, though he says the impact on the economy could escalate significantly beyond these estimates if the flood waters disrupt business activities for lengthy periods, if recovery is slow or is delayed, or if there are major follow-on catastrophes, such as oil or chemical pollution or explosions.

Houston’s main economy is service industries, historically centred on its role as the world capital of the oil industry, but increasingly with contributions from technology, software, biotech and aerospace. The flooding brought much of the economic activity of the city to a halt. Two major airports were closed. ExxonMobil and Royal Dutch Shell shut down their oil refineries in Baytown and Deer Park. The water purification plants of the city are submerged, with water and power loss restricting activities even in areas with no flooding.

Houston is just a part of the affected region but it is one of the leading cities in the global economy and features as one of the 300 cities in the Cambridge Global Risk Index, that considers the potential impact to the economy from 22 different threats. The Houston metropolis is extensive and spreads over 4,200 square kilometres (1,600 square miles). Its GDP is estimated at US$314bn in 2016, and with a modest 1.4% growth in 2017, so prior to the flood, the city was expected to have a GDP of US$316bn in 2017.

The area is used to floods. Hurricane Ike in 2008 caused major flooding, Tropical Storm Allison flooded the central business district of Houston in 2001. The city sits in low-lying estuary land draining into the Galveston Bay, with the Bayou drainage channels historically overbanking at intervals to flood the land that is now urbanised. In the Cambridge Global City Risk Index 2017, flooding is Houston’s top threat for potential economic loss.

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