Flooding and other water risks could cut US$5.6trn from GDP by 2050

Flooding and other water risks could cut US$5.6trn from GDP by 2050 | Insurance Business Canada

Flooding and other water risks could cut US$5.6trn from GDP by 2050

New research from professional services company GHD entitled ‘Aquanomics’ has estimated the future economic impact of water risk from floods, storms, and droughts across 10 geographies. It discovered that a staggering US$5.6 trillion could be lost by 2050, with more than US$1.3 trillion of it lost within the next decade. Australia, the Philippines, and the US are expected to experience among the biggest average economic decline.

Heavy rains in 2022 alone have swamped cities and disrupted water and electricity supply, while droughts have put farmers’ harvests at risk. According to the Centre for Research on the Epidemiology of Disasters, last year's extreme droughts, floods, and storms led to global losses of over USD224 billion.

Using a bespoke model, GHD has measured the damage of increased rainfall (which in turn, increases storm and flood risks) as well as longer, hotter drought periods, and wildfires. Results showed storms to have the biggest economic impact (49%), followed by flooding (36%) and drought (15%).

Loss varied by country and region depending on the state of the area’s infrastructure, local climate and geographic features, dominant industries, and local prevention systems, including existing government policies. Australia, the Philippines, and the US were expected to suffer an average economic decline of 0.5% to 0.7% in annual GDP in the years leading to 2050. On the other hand, the United Arab Emirates and the UK were estimated to have an average yearly impact to GDP of just 0.1%.

Of the five sectors critical to the global economy, manufacturing and distribution were expected to be hit hardest, costing USD4.2 trillion as water scarcity disrupts production and storms and flooding destroy infrastructure and inventory. However, GHD expected all five sectors – banking and insurance, energy and utilities, FMCG and retail, and manufacturing and distributions – to face significant output losses as well as impact on the millions of people working across these industries.

At the 2022 world economic forum held in Davos, Switzerland, a global group of experts launched a new commission to research the economics of water that aims to advise policymakers on water management, Reuters reported. Commission co-chair Tharman Shanmugaratnam said it was time to "transform how we govern water and the climate together".

"The costs of doing so are not trivial, but they are dwarfed by the costs of letting extreme weather wreak havoc,” Shanmugaratnam said.