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Last Updated: Thursday, 1 September 2005, 23:09 GMT 00:09 UK
US counting the cost of Katrina
By Robert Plummer
BBC News business reporter

Flooding in Canal Street, New Orleans
Reconstruction of New Orleans is expected to take years

Americans outside Louisiana and Mississippi who thought the devastating impact of Hurricane Katrina had failed to affect their lives are in for a series of nasty shocks.

The aftermath of the disaster that flooded most of New Orleans and left hundreds, perhaps thousands dead is now expected to hit important sectors of the US economy.

Experts believe the impact will be short-lived and will not tip the country into recession. Growth of 3.5% to 4% is still expected this year.

But while the effects last, consumers face further big hikes in gasoline prices, shortages in the supermarkets and the prospect of bankruptcies in the airline industry.

In the areas that bore the brunt of the storm, relief experts say reconstruction efforts could take longer than in previous emergencies, with the most impoverished inhabitants likely to be last in the queue for resources.

Insurers reckon Hurricane Katrina will turn out to be the costliest US storm in history, with the predicted total of $25bn (14bn) overtaking the $21bn of insured losses inflicted by Hurricane Andrew in 1992.

Oil shock

More than 91% of oil production and 83% of gas production in the Gulf of Mexico region has been shut down because of damage to rigs and refineries caused by the hurricane.

Chevron oil refinery in Pascagoula, Mississippi, flooded out by Hurricane Katrina
Flooded oil refineries have led to rises in gasoline prices

The region is an important energy hub and normally makes up a quarter of US oil and gas production.

World oil prices were already riding high because of increased demand, but Katrina's devastation has added an old-fashioned supply shock of the kind that sent prices rocketing in 1974, 1979 and 1990.

As a result, US motorists are already facing gasoline at $3 a gallon and may have to pay as much as $4 before long - a huge rise compared with an average price of just $1.86 a year ago.

Port chaos

Katrina has laid waste to the vital Gulf Coast ports, which are major gateways for US agricultural exports, particularly corn and soybeans.

The US exports a quarter of all the grain it produces, and roughly 60% of that leaves the country through New Orleans and other neighbouring ports.

The region contains five of the top 12 US ports, including South Louisiana, the country's top port by cargo volume. Imports arriving at Gulf ports include steel, rubber, coffee and fresh fruit.

Boats damaged by Hurricane Katrina in New Orleans
The region's waterways are in turmoil

Freight transport companies are estimated to be losing $3-4m a day while the ports are closed. The coastline is in complete disarray, with barges and containers scattered up to a quarter of a mile inland.

There is no adequate substitute for the Mississippi River as a shipping route, so cargos may have to go by road and rail instead, pushing up costs.

Consumers across large areas of the US face higher prices or even shortages of a wide range of household goods: Chiquita bananas and Folgers coffee are just two of the brand names affected.

At the same time, manufacturers who increasingly rely on "just-in-time" provision of components can expect disruption to their assembly lines.

Airline threat

Tourists spent $5bn in New Orleans last year, representing half of Louisiana's tourism income.

Now visitors are switching to other destinations. Businessmen, too, are going elsewhere, as conventions are being moved to cities such as Atlanta.

The Grand Casino in Biloxi, Mississippi, destroyed by Hurricane Katrina
Mississippi's riverboat casinos were torn from their moorings

Mississippi's gambling industry has been hard-hit, with the state's 12 floating casinos either heavily damaged or destroyed.

The collapse of New Orleans' tourism has taken its toll on the airline industry, which has been forced to cancel dozens of flights to the city's stricken Louis Armstrong airport. Only humanitarian flights are landing there at present.

Although the flight disruption means a significant loss of revenue, the biggest financial impact on airlines is likely to be from soaring fuel prices because of the oil shutdowns. Daily jet fuel production is down by 13% and the price has gone up by 19%.

With many US airlines already in trouble, particularly Atlanta-based Delta, energy analysts think the latest fuel price rise could be the final straw that pushes some carriers into bankruptcy.

Reconstruction delays

President George W Bush has already requested $10.5bn (5.7bn) emergency funds from Congress to provide initial aid.

But with the US budget deficit still the subject of political controversy, getting further substantial sums out of Congress to pay for reconstruction could prove tricky.

Economists predict that the financial boost from rebuilding the storm-damaged areas will go some way to offsetting the negative impact caused by lost production.

However, past natural disasters in the US have generally hit suburban areas, not an entire city centre as in the case of New Orleans.

Disaster relief experts are predicting that it could take five years to repair the damage, as entire districts have to be restored from scratch.

And poorer residents who lack insurance look set to be neglected, since low-income housing is usually a low priority for redevelopers.


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