Prague - The Czech Republic, alongside Germany and Austria, has been struggling with devastating floods in the past three days. Insurance companies have already estimated the cost at hundreds of millions of korunas (tens of millions of euros). But experts say that the flood will not cause Czech GDP to shrink this year. Some even claim that the natural disaster may actually give a boost to the Czech economy.
"The key sector, engineering, keeps going and is not affected at all. Carmakers in Mlada Boleslav and Nosovice have not announced that they are forced to suspend production," said Home Credit analyst Michal Kozub.
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GDP will decrease only by a few tenths of a percentage point in 2013, and the floods will not have any long-term effect on the economy, said Next Finance's Jiri Cihlar.
Analysts say that the most affected sector will be insurance, followed by the transport, chemical, communication and retail sectors. Also, the disaster may negatively affect tourism. "In this regard, Prague is at a big risk," added Cihlar.
Kozub added that this year will also be very difficult for the agricultural sector.
UniCredit Bank economist Pavel Sobisek said that some sectors, such as construction, may actually benefit from the disaster. "The main sector that may benefit from the floods is construction. Reconstruction of the destroyed infrastructure then adds to GDP growth," said Sobisek, adding that the effect of floods on the economy is usually "negative in the short term and neutral or slightly positive in the medium term."
However, as described 160 years ago by French economist Frederic Bastiat in his famous essay on the broken window fallacy, the money spent on repair works would have otherwise been spent on goods and services. "Of course, all natural disasters hurt the economy. The fact that some companies may get more orders is to the detriment of others who lose them," said X-Trade Brokers' Jaroslav Brychta.
The cost of the floods that hit the Czech Republic in 2002 was estimated at CZK 68.6 billion (EUR 2.7 billion) by the Institute for Economic and Environmental Policy (IEEP) at the Prague University of Economics.
