The disastrous floods that occurred last month in eastern Spain are likely to have a negative impact of 0.2% on the country’s Gross Domestic Product (GDP) in the fourth quarter, as stated today by the Bank of Spain, which also expects a mild acceleration in inflation.
More than 200 people died in the deadliest floods in Spain’s modern history on October 29, most of them in the Valencia region, where flood-affected areas account for about 2% of economic activity in Spain.
The flash floods following torrential rains wrecked cars, destroyed bridges and houses, paralyzed businesses, and caused significant damage to crops and industrial plants.
“Estimates are subject to considerable uncertainty, but based on previous weather-related events, the estimated impact on GDP is -0.2% in the current quarter, remaining negative a year later,” the country’s central bank said in a presentation.
It also said the floods would cause consumer prices to rise by 0.15 percentage points.
Before the floods, the government expected the Spanish economy to grow at a rate of 2.7 percent this year, far outpacing the economic performance of other European Union member states. Consumer prices in Spain rose 1.8% in the twelve months to October.
The government announced a package of aid measures worth 14.36 billion euros to help households and businesses cope with the economic impact of the floods.
Bank of Spain governor Jose Luis Escriva said it would be desirable for the aid to be “temporary and specifically targeted” at affected industries to reduce long-term costs.
Damage to businesses in flood-hit cities could exceed 10 billion euros, with banks’ exposure to loans in the affected area standing at around 20.6 billion euros, according to local business representatives and a Bank of Spain official earlier this month.
Today, Escriva said Spain’s banking sector will be able to absorb the shock, including smaller financial institutions that are more exposed in the hardest-hit areas.
In total, the central bank identified nearly 27,000 businesses with outstanding loans and half a million borrowers in those areas.
