There’s bad news on the horizon for the global economy, according to a new study published in Nature Climate Change, and it’s all due to flooding. The study, which used the dynamic economic Acclimate-model to assess the impacts that intensifying river floods are having on economies worldwide, suggests that extreme flooding in China will affect EU and US industries. According to the study, over the next 20 years, we can look forward to an increase of 17% in total economic losses due to fluvial floods.
"Not only local industries will be affected by these climate impacts," says Sven Willner, lead author of the study. "Through supply shortages, changes in demand and associated price signals, economic losses might be down-streamed along the global trade and supply network affecting other economies on a global scale -- we were surprised about the size of this rather worrying effect."
Flooding in China is predicted to increase within the next 20 years by 80%. Projections show that unless we take drastic measures, climate change will likely increase economic losses worldwide due to fluvial floods by over 15%, resulting in a total of about 600 billion USD worth of losses. Because China is such a huge producer, such flooding will undoubtedly lead to regional production losses which will result in a chain reaction of events around the world, disturbing economies in all corners of the globe.
Understandably, the model predicts that China will suffer the highest direct economic losses from river floods with an increase of 82%, equivalent to over 380 billion USD throughout the next 20 years. "This is a lot," says Willner, "and it is only the effect of river floods, not even taking into account other climate change impacts such as storms and heat waves." What’s perhaps more surprising than the direct economic losses in China are the substantive indirect effects on the US and EU economies that China’s flooding will have, mainly due to trade relations.
Willner explains the complexity of the dynamics: "The EU will suffer less from indirect losses caused by climate-related flooding in China due to its even trade balance. They will suffer when flooded regions in China temporarily fail to deliver for instance parts that European companies need for their production, but on the other hand, Europe will profit from filling climate-induced production gaps in China by exporting goods to Asia. This yields the European economy currently more climate-prepared for the future," says Willner. "In contrast, the US imports much more from China than it exports to this country. This leaves the US more susceptible to climate-related risks of economic losses passed down along the global supply and trade chain."
Aside from the relations between these specific economies, the take-home point is the interconnectedness of the global economy and its resulting vulnerability to climate change. The World Bank's economist, Stéphane Hallegatte, commented on the study’s findings, stating that what stuck out most was that: "…natural disasters are not local events anymore: everybody can be affected by a disaster occurring far away. It means that risk management is more than each country's responsibility: it has become a global public good."