It takes a long time for natural disasters to have a noticeably large impact on national real capital and gross national income figures. Nevertheless, recovery from such disasters can help boost production and GDP.
The extreme weather phenomenon “Hans” led to landslides, flooding and flooding in parts of southern Norway in August 2023. This resulted in severe material damage, loss of real capital and disruption or prevention of normal economic activities.
National accounts contain data on the total real capital in the Norwegian economy. Within national accounts, the overall real capital in the Norwegian economy comprises various types of capital, the most important of which is the construction sector. Construction includes both residential and commercial buildings, as well as infrastructure such as roads, railways, bridges, etc. The last complete accounts are from 2020. Total real capital was then estimated at over NOK 12 billion. Of these, almost three-quarters accounted for construction.
Significant investments are made in real capital annually, but at the same time existing capital is consumed. In 2020, total investments in physical capital amounted to NOK 950 billion, while capital consumption was estimated at NOK 700 billion. Construction, due to its longer lifespan, is responsible for less than half of investment and capital consumption.
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Changes in volume due to natural disasters have no impact on Norway's gross national income
The value of real capital is determined as the initial value at the beginning of the year, to which investments are added and capital depreciation is subtracted. There are also adjustments related to revaluations and other volume changes. Damage of the kind caused by “Hans” will typically be considered as such volume changes, which will result in an additional downward adjustment to the actual share capital in 2023.
The Norwegian Natural Damage Pool gave a preliminary estimate of the damage after “Hansa” at NOK 1,6 billion. These estimates are expected to increase. It does not cover any damage to private property and does not cover damage to public property. Nevertheless, it indicates that damage is unlikely to exceed one percent of normal capital consumption in 2023.
Volume changes as a result of natural disasters do not impact on national income Norway's gross national product, which is defined as gross national product and net remuneration and income from assets abroad, less ordinary consumption of capital. Changed actual capital will result in a change in capital consumption in the future and therefore a change in operating profit and disposable income. However, the loss must be very large if it is to have any visible impact in the national accounts.
It would have been better if this damage could have been avoided
Insurance payments are not included in the gross national accounts because insurance services are calculated on a net basis. However, work on repairing the damage and rebuilding after Hansa will be considered production that increases gross domestic product and disposable income. However, the damage is minor compared to the total gross investments in real estate in a normal year. At the same time, they will hardly appear in the overall figures after the 2023 national accounts.
That the impact of the damage suffered by “Hans” could result in a higher gross domestic product shows a prime example of the limitations of GDP as a measure of prosperity. It would be much better for the residents affected by the disaster if this damage could be avoided, which would result in no need for reconstruction and repairs.
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Source: Statistics Norway
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