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Thu, Sep 08, 2005 - Page 12 News List

Hurricane's costs keep mounting

DEEP IMPACT The fallout from Katrina is expected to slow economic activity throughout the US from one-half percentage point to a full percentage point

AP , WASHINGTON

A big sign calling for help is painted on an empty street in New Orleans, Louisiana, on Tuesday. Paul Getman, chief executive officer of Economy.com, estimates the economic loss to the Gulf Coast from Hurricane Katrina will total around US$175 billion.

PHOTO: AFP

The economic hit from Hurricane Katrina keeps growing, with experts now saying it's likely to top US$100 billion and could go much higher.

And while the epicenter of the damage is on the Gulf Coast, consumers around the country -- already dealing with record-high gas prices -- also may end up paying more for everything from lumber to coffee because of disruptions wrought by the storm.

The government has yet to put an overall price tag on Katrina, but there is general agreement the hurricane will be the most expensive natural disaster in US history.

Paul Getman, chief executive officer of Economy.com, estimates the economic loss from the hurricane that devastated New Orleans and a swath of communities along the Gulf Coast will total around US$175 billion.

Most of that -- US$100 billion -- is damage to homes, businesses, roads, bridges, levees, telecommunications, water and sewer systems and other public infrastructure, he said. Another US$25 billion is the cost of disrupted economic activity. Larger energy bills faced by consumers and businesses make up the other US$50 billion.

Fallout from the hurricane will slow economic activity for the country as a whole in the months ahead anywhere from one-half percentage point to a full percentage point, economists said. That's because elevated prices for energy and other goods are expected to damp spending by consumers and investment and hiring by businesses, analysts said.

Secretary of the Treasury John Snow said late on Tuesday that the economy could see a loss of about one-half percentage point in growth this year but that growth would be boosted by about one-half percentage point next year because of the rebuilding activity.

"I am confident about the American economy," he told reporters.

Snow made his comments in a meeting with federal banking regulators to assess the efforts being made by commercial banks to assist storm victims. Asked if he thought that any small banks might fail, Snow answered, "The banking sector overall remains healthy and strong."

The storm's economic impact is being felt by consumers and businesses around the country because the Gulf Coast region is an essential hub for oil and gas production and distribution. The area also is home to vital shipping and transportation links that allow grain and other goods to flow out of the country and coffee and other cargo to flow in. Oil facilities were knocked out. Ports, roads and railways were crippled. Businesses were shut down.

For consumers, the fallout means higher prices not only for gasoline, but potentially for a variety of other goods as well, analysts said.

"Consumers are likely to pay more for lumber, coffee, chocolate, perhaps sugar -- anything that we import through the ports in the affected region will face higher prices," said Mark Zandi, chief economist at Economy.com.

More expensive fuel costs to transport all kinds of goods also are likely to show up in higher prices charged to consumers.

"Almost every good that sits on store shelves might see an increase in price related to Katrina," Zandi predicted.

As business costs go up, manufacturers are likely to pass more of those increased costs for energy and other materials to customers and ultimately to consumers as higher prices, said Clifford Waldman, economist at Manufacturers Alliance/MAPI, a research group.

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