Bank of Canada says small disasters can boost economy, but costs add up

Minor natural disasters can temporarily boost economic growth, but repeated and severe catastrophes strain public finances, according to a new Bank of Canada report.

Blacklock's Reporter says after analyzing 40 years of data, researchers found that while earthquakes, floods, droughts, and fires often lead to short-term gains in gross domestic product, long-term debt concerns outweigh the benefits.

“We find a small positive effect on GDP after a disaster,” the report stated.

“The post-disaster reconstruction effort dominates, on average. However, a province’s level of fiscal capacity does play a role after a disaster.” Researchers concluded that when government finances are strong, recovery efforts can spur economic activity.

However, analysts warned that frequent disasters increase debt spending, weakening the ability of governments to respond to future crises.

“A circular issue exists where more frequent and severe disasters lead to increased debt spending, raising provincial and national debt levels,” the report stated.

The study examined disasters ranging from a $1.6 million blizzard in Prince Edward Island in 1982 to a $4 billion wildfire in Fort McMurray in 2016.

Researchers found that provinces with weaker finances struggle to recover, prolonging economic downturns. They cautioned that while historical trends offer insights, extreme events could have far greater consequences than past data suggests.

Separate federal studies have warned of catastrophic losses from rare disasters, such as a major Pacific coast earthquake.

A 2017 Department of Public Safety analysis predicted that such an event would cause widespread infrastructure failures, food and water shortages, and severe public health risks.

Planners cited Japan’s 2011 Tohoku earthquake, which caused more than US$195 billion in damage, cutting the country’s oil refining capacity by 20% and crippling transportation networks.

The last major quake on Canada’s Pacific Coast, a 9.2 magnitude event in 1964, triggered landslides and a tsunami that killed 131 people and caused destruction from British Columbia to California.