How Does The Weather Affect The Economy?

by Viva Avasthi


Living in the UK means that the weather has really (annoyingly!) been playing up recently. Only last week the weather was lovely but this morning there was a full-blown blizzard outside my bedroom window...


The Telegraph - Britain to be battered by gale force winds, snow sleet and rain as Winter returns for Easter 2012

OK, such a short burst of change in weather may not affect the economy much. However, this led me to thinking: just how much does the weather affect the economy? I'll focus primarily on the UK economy, of course, but since the world is so interconnected - through globlisation as you will probably be aware - I might just check out the impact of the weather on the global economy too (in a different post, perhaps.)


In December 2010, the UK saw a horrible winter with freezing conditions and heavy snow which discouraged shoppers from visiting high streets becuase of the chaos on some roads and the prevalent risks involved. There were two cold snaps, one in early December and another closer to Christmas. Naturally, this was terrible for the country's economy and at the time, the RSA (Royal Sun Alliance) and the FSB (Federation of Small Businesses) predicted the second big freeze cost the UK economy more than £1.2bn per day after the first had already cost the economy around £4.8bn.

In an article about the impacts of severe weather (Economics focus: Chilling Consequences), The Economist says:

'Five severe “snow days”, say, would therefore have cost Britain around £6 billion. That is a substantial sum for an economy whose quarterly output is worth approximately £330 billion.'

Britain's statistical agency blamed almost all of 0.5% fall in GDP in the last quarter of 2010 on December's bad weather.

The above are the 'facts', so to speak. Some would argue that, yes, the severe weather did indeed cause the shrink in the economy. Less people visited high streets and so the economy missed out on the big boom usually gained from the last-minute Christmas shoppers. People were unable to make it into work and the small number of factories there are in this country were unable to produce goods because workers simply couldn't make it in.

However, the counter-arguments are, I believe, very strong. I like the way The Economist weighs it up in the same article as previously referred to (please see the sources list at the bottom of this post for the link to the article).

To give a brief summary of what the article says, The Economist essentially gives and backs up the opinion that 'economic activity is displaced, rather than destroyed, by bad weather'. So although people might not be able to buy Christmas gifts on time, they would stockpile either before the severe weather, or make up for it afterwards, which balances everything out. Similarly, although people may be unable to get to work, they might be able to work from home, or work overtime after the bad weather, creating an equilibrium. In essense, the shrink in the economy casued by the weather in cases like this is nothing to worry about in the long term as long as it is actually caused by the weather. Other factors, such as people not buying from high streets due to the advantages and flexibitly of shopping online, are a different story altogether...


Any opinions?
Comment below and share your thoughts! 


Sources:

http://www.channel4.com/news/snow-chaos-costs-uk-economy-1-2bn-a-day
http://www.economist.com/node/18112265