Natural Disasters and Market Reaction

The recent run of natural disasters and how the market has reacted is the subject of a recent Barron’s article.

Underscoring the gravity of lives lost and emotional scars from these disasters, the article points out that, “from a purely economic perspective—where analysis replaces emotion—disasters tend to spur economic growth over the short and long term despite the widespread destruction they leave behind.”

The article cites the “short-term growth boost” that followed what it refers to as the costliest disaster of all time—Japan’s 2011 earthquake and tsunami. “The response to the disaster that took place at the end of the first quarter of 2011 helped Japan’s economy rebound with the strongest quarterly growth rate Japan had seen in decades in the third quarter of 2011.” Since that time, it adds, Japan’s GDP growth has exceeded the prior 20-year average. The article cites other examples, including China’s 2008 earthquake and the California Northridge earthquake that “helped pull the state out of a three-year recession.”

“While no one would wish for a disaster,” the article concludes, “we can take some comfort in knowing that they can help foster future economic growth—rather than weaken it.”