Germany: Economic And Political Impact Of The Floods

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It will still take some time to fully measure the full impact of the devastating floods in the Western parts of Germany (as well as in Belgium and the Netherlands). Often, the impact on the total economy stands in no comparison with the human suffering. In Germany, it would not be the first time that a natural disaster becomes a political game-changer.

Last week, parts of North Rhine Westphalia and Rhineland Palatinate were flooded by heavy rains and rivers overflowing. The human suffering is and will be enormous. According to official reports, some 100 people died, some 1,000 people are still missing, and homes, stores and infrastructure have been destroyed. While no price or costs can be put on human suffering, the questions which always arise after these kind of natural disasters are on the overall implications for the economy and, two months ahead of the federal elections, on politics.

Economic impact

It will still take a while to really take stock of the economic damage. Looking back at past natural disasters and the damage as estimated by the insurance industry shows that the floods in 2002 have so far had the most severe economic impact with an estimated insurance damage of 4.5bn euro (some 0.1% of GDP). Industrial companies, which are located at the Rhine River, have so far not been hit by the floods. As a consequence, the total economic impact should remain limited; even though the existential impact on the retail or hospitality sectors, which have already suffered enormously under the lockdowns should definitely not be underestimated. The bitter irony of these kind of natural disasters often is that the rebuilding of homes and infrastructure could have a positive impact on GDP growth going forward. In the end, GDP growth is a flow and not a stock measure.

Political impact

With only two more months to go until the federal elections, such natural disasters can have a crucial and trend-setting impact, both in terms of personal appearances for the leading candidates as well as for the hot topics for the final months of the campaign. As regards appearances, many politicians, spin doctors and political observers still remember the 2002 floods in the Eastern parts of Germany. Back then, incumbent chancellor Gerhard Schröder was clearly behind in the polls against his challenger Edmund Stoiber from the CDU. When the floods started, Schröder moved quickly, put on his rubber boots, immediately travelled to the hit regions and made it seem like he was on top of things. Stoiber only showed up with a delay and had put on a blue shirt and no rubber boots. These tv pictures made Schroeder the hands-on manager of the country, giving him an enormous boost in the polls and eventually had him win the elections.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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