The 2013/06/27 at 08:13
Marie Luginsland, in Germany
Flood levels have not yet begun to drop but public authorities and insurance companies are already checking the accounts. With damage costing, according to the Fitch ratings agency, twelve billion euros, insured damage will probably amount to, according to the Federation of German Insurance Federation (GDV), four billion euros. Much less than the 2011 floods in Thailand which, coming to nine billion euros in insured damage, is the most significant event ever to be experienced by insurers since the start of the century.
However, the bursting of embankments, the evacuation of towns, and the interruptions to train traffic have also wrought collateral damage that is difficult to put into figures. It is this hidden face of the disaster that, according to the DIHK, the federation of German CCIs, directly strikes small subcontractor companies as well as the tourism and restaurant industries. In this way, Alexander Schumann, Head Economist at the DIHK notes that “the floods have not spared the economy. Businesses have been unable to produce, shops have remained closed, as well as restaurants. All this currently causes a cost in growth for us.”
Meanwhile, Eric Schweitzer, President of the DIHK comments that “in certain regions, damage is expected to be higher than that from the 2002 floods when the total cost came to 11 billion euros.” The Chamber of Commerce of Lower Bavaria (IHK Niederbayern) estimates that between 3,000 and 4,000 SMEs in its region have been seriously affected by floods.
In a country where insurance coverage against natural events is optional, only one-third of buildings are insured. Many companies are not insured against floods or interruption to activity and loss of operations. The consequences of these exceptional events, as notes Walter Keilbart, Director of the IHK Niederbayern, “do not exclude bankruptcy for certain companies”. In Bavaria, Saxony and Lower Saxony, one company out of nine in the building sector has declared itself to be suffering from operational loss after a very long winter and the floods at the end of spring.
These are all reasons leading the German CCIs to introduce a “non-bureaucratic” online aid service diffusing information on financial support enabling a quick recovery of activity. Berlin has also stated that the deadline for cessation of payments will benefit from a one-off extension.
In addition, a federal aid fund worth 100 million euros has been set up, while a loan programme worth the same sum has been unblocked. Similarly, on the level of the Länder (states), regional governments are doling out aid. In this way, Saxony is granting 1,500 euros to each afflicted household and up to 1,000 euros to uninsured companies. Meanwhile, the European Commission has announced that it will help the German, Austrian and Czech economies via the European Union Solidarity Fund set up following the 2002 floods.
While damage may be spectacular, economic analysts are not downhearted, nurturing their optimism on the basis of the 2002 experience. The floods eleven years ago, despite being described as the event of the century at the time, finally had little effect on the evolution of the economy. This time, their influence is once again expected to remain minimal.
The Halle Institute for Economic Research (IWH) counts on a 0.2 % dip in GDP between April and May. Experts from the institute declare that without the rain and floods the German economy would have been slack. They go on to suggest that as in 2002, the floods will have no long-term impact on the economy. The 2002 floods even produced one billion euros in value creation, in other words 0.05 % of the GDP! It is foreseeable that the floods will boost domestic demand in the second quarter. As in 2002, households benefiting from grants will be getting reequipped and thus stimulating consumption in this way. At the same time, local authorities will be investing in new infrastructures.
The DIHK, which recently confirmed its growth forecast of 0.3 % for the year, reminds that as in 2002, cleaning, embankment and company-relaunch activities will have an exceptional effect on the economy. The building industry will be among the first to benefit.