As a character in William Shakespeare’s play Hamlet said, “When sorrows come, they come not single spies, but in battalions.” This year, apart from Covid-19, the world is facing yet another problem: natural disasters. In mid-July, devastating floods hit Western European countries, destroying thousands of houses and killing hundreds of people in Germany, Switzerland and Austria.
Russia was hit by unprecedented forest fires in Siberia and Karelia; meanwhile, Iran and Kazakhstan suffered from drought and water shortages. Farmers hit by deteriorating weather conditions had no choice but to leave their villages to live in precarious settlements on the outskirts of cities.
Additionally, Kazakhstan has imposed a six-month ban on the export of livestock fodder. As a result, prices for feed have skyrocketed.
China was not spared, where a typhoon killed at least 69 people. Additionally, China’s Ministry of Agriculture and Rural Affairs said the floods had increased the risk of epidemics as rotting carcasses of dead livestock and poultry floating in the undrained water could produce and spread pathogens.
Some of these catastrophes also paralyzed road, rail, and sea transport. Rail operator Deutsche Bahn said last month that the floods that hit western Germany caused an estimated €1.3 billion (US$1.53 billion) worth of damage to its network and railroad stations.
Losses in China have yet to be calculated.
Nevertheless, the first consequences were not long in coming: Ocean freight rates increased almost immediately. As a result, there is a high probability that global inflation will continue to rise, threatening the 2021 holiday shopping season. Against this backdrop, some companies have already issued declining-earnings warnings.
Among the industries that will be hit the hardest is the automotive sector, as many of the world’s leading manufacturers and their suppliers are based in flood-affected regions. In the event that the production of chips is also affected, the disruptions will affect the manufacture of aircraft, mobile phones, televisions, game consoles, hospital equipment, and even washing machines. In other words, any product that has a microprocessor.
In addition, the floods could disrupt the supply of copper, which is used in a wide range of products, from electronics to electric vehicles. In this context, we cannot rule out a certain deterioration in the pace of world economic growth. Will central banks be forced to reinstate stimulus measures?