The floodwaters are still high in southern Alberta, and the power is still out in half of downtown Calgary, Canada's fourth most-populous city. Still, it's apparently not too soon to start the entirely pointless game of estimating how much the disaster will affect Canada's economy. This is the inverse of trying to estimate how much events like the Royal Jubilee or the London Olympics would affect UK GDP last year. Because almost all economic activity can be shifted in time or place, it's virtually an impossible exercise. It's one of those things that economists opine on because they're asked, rather than because they know the answer.
According to this story in the Toronto Star, economists at Bank of Montreal have come up with a very rough estimate that the flooding will knock 0.1% off Canada's GDP for June. That doesn't sound like much, so the Star ups the ante by noting that "On an annualized basis, that's worth about $ 2 billion", a statement that makes absolutely no sense to me at all. Let's think about some of the issues here.
* It's true that Calgary's downtown, home to many large corporate offices, has been closed for a couple of days. However, many of the activities that would have taken place there have presumably been carried out temporarily elsewhere, and most of the rest will be caught up through overtime once the city is back to normal. It's hard to believe there will be any permanent loss of output.
* Despite promises that the Calgary Stampede will go ahead on schedule, there's bound to be an impact on tourism in the areas worst affected. However, if you think that will affect overall GDP growth, you have to believe that people who had booked vacations in southern Alberta for this summer will simply decide to stay at home and keep their money in the bank. That's not likely: people will go someplace else instead, so any loss to the tourism sector in Alberta will be offset by a better outcome in another part of Canada.
* Then there's the reconstruction activity. The Province of Alberta has already pledged $1 billion to get the ball rolling on that, and Premier Alison Redford is warning that total reconstruction could take up to ten years. A lot of plumbers and concrete pourers and roofers are going to make out like bandits through the summer months. Now of course, that may not be net new activity -- Alberta's economy is in decent shape, and those folks may well have been working someplace else anyway. Still, the rebuilding efforts should ensure that, even if BMO's economist is right about the impact on June GDP, that loss will be quickly recouped in the succeeding months.
One interesting sideline on the reconstruction is that both the Federal and Provincial governments have been quick to promise emergency funding. As noted above, Alberta is putting up an initial $1 billion. These are both governments that espouse spending restraint and like to warn of the dire consequences of living beyond one's means. It's entirely right that such concerns are relegated to second place at a time like this, but as the public money starts to get Calgary, Medicine Hat and the smaller communities back on their feet, you wonder whether the implications for longer-term policy might work their way through a few thick skulls. Probably not, alas.
Let's go back to Bank of Montreal, whose analysts have certainly been busy. One of their insurance experts has estimated that the property damage from the floods will be in a range of $3-5 billion (CAD). But alas, no more than 75% of that will be met by insurers, because as a matter of routine "overland flooding" (water coming through doors and windows) is excluded. That certainly helps explain why the taxpayer is facing such a large bill for the cleanup. Time to check the sump pump, and maybe stick a few pins in a juju doll for your insurance broker.
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