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One big hurricane could ruin world economy

If a Category 5 hurricane hit the US it could cost $1.35 trillion and send the global economy into a recession.

Hurricanes are not cheap. Take Hurricane Harvey, which badly damaged Texas in 2017, and is estimated to have cost the US $125 billion. Hurricanes smash up stuff that then needs to be repaired or replaced (Harvey messed up 300,000 buildings and 500,000 cars). And all the distress and mess hurricanes cause disrupts everyday economic transactions: businesses close, people don’t go to work, tourists stop visiting, etc.

Although Harvey was one of the most expensive storms on record, the United States is the richest country in the world (if you go off GDP) and could cope with the bill. But Harvey was “only” a Category 4 hurricane (i.e. the second-highest level, where wind speeds are between 130-156 mph). As climate change makes hurricanes stronger, people are starting to seriously worry that we’re one big Category 5 hurricane away from an economic disaster on the scale of the 2008 financial crash.

The world has already experienced Category 5 hurricanes. They have been deadly and devastating for the communities affected. But so far, none have been a “worse-case” scenario and hit America’s east coast. Such a hurricane wouldn’t be worse-case because east coast American lives are more important. It would be worse-case because America is such an influential player in the global economy that when it has problems, the effects are felt throughout the world.

A big concern is that American property and businesses are so valuable (a Category 5 hurricane on America’s east coast could cost $1.35 trillion) that insurance companies might not be able to afford the payout if lots of them were destroyed at once. And insurance companies, like banks pre-2008, and really closely entwined with global financial markets. If they go bankrupt, the world would probably have another 2008-style recession, complete with lots of unemployment, austerity and general misery.

Read our explainer on: the environment.

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