by Calculated Risk on 8/30/2005 04:04:00 PM

The Economist ponders the impact of Katrina: The damage that Katrina could still wreak:

Besides its devastating cost in lives, Katrina could push the American economy—maybe even the world economy—into recession ...

Nor will the effects of Hurricane Katrina be limited to the Gulf Coast and the offices of a few agitated insurers. Analysts are busy rewriting their forecasts of America’s fourth-quarter GDP growth to take into account the expected economic repercussions of the devastation. The affected area’s ports move a large fraction of the nation’s imports—including critical oil and gas supplies—as well as roughly half its exports of agricultural commodities like corn and soyabeans. ...

Chief among the worries is the oil industry. The Gulf of Mexico provides about a tenth of all the crude oil consumed in America; and almost half of the petrol produced in the country comes from refineries in the states along the gulf's shores. Oil companies are busy assessing how much damage was done to drilling rigs, refineries and port facilities ... This is bad news considering that refineries have been running flat out in recent months to keep up with high demand. ... while much of the recent oil-price increase was demand-driven, and thus expected to have relatively benign economic effects, any outages owing to Katrina could cause a supply shock—meaning the kind of sudden, negative effects that battered the world economy in the 1970s.

As a rule of thumb, every $10 sustained increase in the price of a barrel of oil is estimated to result in a loss of something like half a percentage point of GDP. ... Some economists are worried that if there are extensive shutdowns of oil and gas production, this could push the economy to the brink of recession.

That is bad news abroad ... particularly ... Asia ... are already dangerously dependent on robust American demand for their exports. Those countries are also being hit by higher oil prices. Indonesia’s central bank was forced to tighten the money supply sharply on Tuesday ... While rich countries are much less dependent on oil than they used to be, thanks to increases in fuel efficiency and a shift from manufacturing to services, middle-income countries are still big energy guzzlers: India and South Korea use more oil per dollar of GDP today than they did in the 1970s.

Europe’s recovery could also be choked off in its infancy by the steady upward march of prices for petrol and heating oil. That would weaken another of Asian exporters’ main markets and leave the global economy little refuge if American demand were to stutter. If Katrina has damaged America’s capacity to pump and refine oil, forcing Americans to shop abroad for more fuel to feed their gluttonous appetites, it could be a long cold winter for everyone.