The growth effects of natural disasters

I don’t have to tell anyone living in Europe in the summer of 2026 that extreme weather events are becoming more frequent. A couple of months ago, I wrote about a study on how these events impact four major European economies. Now, a new study by the IMF sheds light on the effects not just for 12 months but up to two years after an extreme event. And importantly, it also looks at the extreme tail risks.

The study looked at 196 countries between 1970 and 2023 and estimated how much real GDP would be impacted by severe windstorms, floods, droughts, heatwaves, and extreme cold. The good news, kind of, is shown in the first chart. Floods, heatwaves and cold snaps don’t seem to have a lasting impact on GDP on average. But storms (hurricanes and typhoons), as well as droughts, leave a lasting impact in the order of 0.1 to 0.2 percentage points.

The analysis splits the sample into advanced economies and developing economies and shows that, once again, poorer countries are less resilient and see a larger loss of GDP after two years than richer ones.

Median loss of GDP two years after a major natural disaster

But this chart is only the median impact of a severe weather event. When you go to the extreme tail of the 1% most severe natural disasters, the long-term destruction of GDP can become large. The chart below shows that the most severe windstorms lead to a reduction of economic output of 0.5% even two years after the event. The most extreme floods reduce output by a large 3.2% after two years. And again, poorer countries tend to be less resilient.

This is why investments in climate adaptation and resilience are so incredibly important. The costs may seem large when you build flood defences or storm protection, but when extreme disasters hit, the costs to society are many times larger than that. Even at a cost of billions, these investments tend to be good value for money.

Loss of GDP two years after a natural disaster in the most extreme tail