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How Hurricane Harvey will affect investors
Texas is the second largest economy within the US, but the severe damage caused by Hurricane Harvey is unlikely to hit investors too heavily, according to an economist.
How Hurricane Harvey will affect investors
Texas is the second largest economy within the US, but the severe damage caused by Hurricane Harvey is unlikely to hit investors too heavily, according to an economist.
Hurricane Harvey, which made landfall in the US on 25 August, is the first major hurricane to hit the country in around 12 years, but is unlikely to have a severe or lasting effect on markets, according to Shane Oliver of AMP Capital.
Mr Oliver based his beliefs of historic data taken from August 2005, when Hurricane Katrina hit the US coastline and caused similar damage.
“As we have seen with past such disasters including Hurricane Katrina in August 2005 the negative economic impact will be [relatively] minor and temporary,” he said.
“US growth went from 3 per cent in the third quarter of 2005 to 2 per cent in the fourth quarter to 5 per cent in the first quarter of 2006 and will be followed by a boost due to rebuilding. The US Federal Reserve will look through it.”
Mr Oliver said that the hurricane will likely stifle the country’s economic data through increased jobless claims and higher inflation, driven by higher petrol prices, as 20 per cent of US oil refineries have been shut down in the midst of the storm, but other risks have now been reduced.
These risks include the possibility of a government shut down and a debt ceiling crisis, where the US government risks reaching the maximum amount of money it’s allowed to borrow.
“US federal government agencies like the Federal Emergency Management Agency will be central to the assistance and rebuild effort and Texas voted for Trump,” Mr Oliver explained.
“Given this, it's inconceivable that Trump and Congress will countenance a government shutdown and debt ceiling crisis in the immediate aftermath of a disaster.”
The US government typically avoids debt ceiling crises by raising the amount they’re allowed to borrow, and Mr Oliver said US President Donald Trump is “reportedly” looking to include a request to raise the ceiling in the request for Hurricane Harvey relief funding, thus speeding up the process.
“More broadly at the margin Harvey may help galvanise Republicans in Congress to get moving on their agenda — with tax reform high on the list and infrastructure in there as well,” Mr Oliver added.
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