Macroeconomic impact of weather disasters: a global and sectoral analysis

Whether and how extreme weather shocks transmit to economic activity and, in turn, inflation is key for monetary policy. We look at the macroeconomic effects of different types of weather disaster for up to 151 countries over 2000-24. We study their macro-level and sectoral effects on GDP growth and on relevant sub-components of inflation. Using local projections, we find that the negative effects on GDP can be quite sizable and long-lived: -2%, -1% and -0.4% after the average-size droughts, landslides and wildfires, respectively, over four years. At the sectoral level, we find that agriculture-forestry-fishing and mining-construction-water-energy are negatively affected by several types of weather disaster. Most types of weather disaster have relatively small and short-lived effects on inflation, but with larger and more persistent increases in food prices than in the other components of CPI. Fiscal space and insurance can reduce the negative impact of natural disasters.