Hurricane Ian could put a dent in US GDP growth

Minneapolis(CNN Business) The devastation wrought by Hurricane Ian likely caused more than $50 billion in damages — and also dinged overall US economic output, economists say.

Initial damages from the deadly storm are estimated to be in the range of $45 billion to $55 billion in Florida and at least several billion dollars in South Carolina, according to Laura Ratz, an economist with Moody's Analytics.

"So far, it looks like Hurricane Ian is on track to rank among the more costly natural disasters of recent years," Ratz wrote in a note late last week.

The hurricane's impact on local municipalities in Florida and South Carolina is so severe that it is expected to slash third-quarter economic growth in those states by 3 percentage points and 2 percentage points, respectively, according to Oxford Economics.

What's more, the storm also stands to take a bite out of national gross domestic product growth in the near term.

Gregory Daco, chief economist with EY Parthenon, projected Hurricane Ian could have a -0.3 percentage point impact on third-quarter GDP and bring down fourth-quarter GDP by 0.1 percentage points. Taking Ian's estimated impact into account, Daco now projects GDP growth of 1.7% in the third quarter and a contraction of 1.4% in the fourth quarter.

"You have power outages, you have flight cancellations, you have disruptions to energy extraction and refinement, you have disruptions to crops — all of those are part of normal economic activity," Daco said.

And some of that lost economic activity is never regained or even fully replaced by reconstruction efforts, he said.

"We have to be careful about this so-called 'broken window fallacy' — this idea that if you break a window, because you have to repair it, you're essentially generating output," he said. "That does not hold in the case of a natural disaster in any form."

"You do not double up on the energy production after a hurricane; you do not double your crops ... you're not going to work twice as hard next week because you had no power this week," he added.

Although an immense effort of reconstruction and repair work will be undertaken, and that effort will bolster economic output, the benefits will filter out over multiple months, he added.

"In terms of the impact on growth, it's likely to be invisible, relative to the national economy," he said.

The magnitude of impact to local economies and to key tourism-centric industries in Florida and South Carolina are likely to be "severe," according to Matthew Martin, a US economist with Oxford Economics.

"Damage to Florida's and South Carolina's leisure and hospitality, retail trade and health care industries will be key for assessing the economic impact, since they collectively account for about 20% of each state's GDP and 40% of jobs," Martin wrote in a note published Friday.

Noting the hurricane "does not pose a major threat to the US economy," Martin wrote that the supply chain stress is expected to be relatively modest. The ports of Florida and Charleston, South Carolina, process less than 10% of total US imports, and some have already resumed operations, he wrote.

Still, the impacts will be felt by a wide range of industries — among them aerospace, health care, electronics, automotive, pharmaceuticals, agriculture and manufacturing — at a time when supply chains are trying to recover from disruptions caused by the pandemic and Russia's war in Ukraine, said Bindiya Vakil, chief executive officer of Resilinc, which provides supply chain modeling and risk-management software to companies like IBM, General Motors and Amgen.

More than 4,600 facilities and more than 74,000 different types of parts are located in the affected areas in Florida, she said.

"Ripple effects from [these types of events] can last for more than five to six months," she said.

The affected parts cannot make it on time to factories that are relying on their delivery, Vakil said. Without these raw materials, those factories cannot deliver in time to their customers, she added, noting these disruptions could prove especially painful in industries such as consumer electronics and automotive.

"These industries are already reeling from the semiconductor shortage," she said.

CNN Business' Matt Egan contributed to this report.