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Katrina may curb economic growth into 2006
Updated: 2005-09-05 09:17

NEW YORK - The physical and psychological damage caused by Hurricane Katrina is likely to reverberate across the global economy in ways that will curb growth well into 2006, economists say.

A spike in already-high energy costs in the United States and around the world tops the list of risks, especially since oil prices are unlikely to return to the levels of early 2004 when they were 50 percent lower than they are today, according to International Monetary Fund Managing Director Rodrigo de Rato.

Katrina may curb economic growth into 2006
Patricia Runnels, left watches as Monty Ladner and Keith Wilkes, right remove a freezer from her home in Gulfport, Miss., on Sunday, Sept. 4, 2005. Runnels was attempting to clear as much of the debris caused by Hurricane Katrina in an attempt to save her floors. [AP]
Katrina shut down large portions of oil and gas production in the Gulf of Mexico at a time when worldwide energy output was already stretched thin. While the storm's impact was most acute in the United States, it also sent fuel costs higher around the globe, squeezing consumers in Europe and Asia and hurting everyone from truckers to fishermen to airlines.

The shock of higher gasoline prices and concerns about supply shortages appeared to cause a cutback in travel over the Labor Day weekend in the United States. Economists say a slump in consumer confidence is likely. "There's a psychological impact. Consumers aren't in a festive mood," said Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C.

The storm wiped away up to half a million jobs in New Orleans and other Gulf Coast areas. And its tab is almost certain to top $100 billion, with only about a quarter of that covered by insurance, according to an assessment by Risk Management Solutions of Newark, Calif.

The federal government has pledged billions of dollars of rebuilding funds, but it will take months for the basic recovery efforts to be completed before the money for reconstruction starts flowing. "This is such a different type of disaster than we're accustomed to dealing with," Vitner said.

The full extent of the damage to oil and natural gas infrastructure in the Gulf of Mexico is not yet known, but it is expected to be weeks, if not longer, before output is back to normal. The same goes for the facilities that refine crude oil into gasoline, heating oil and jet fuel.

"It's quite likely that the impact of Katrina on energy production will end up dwarfing that of Ivan," said Antoine Halff, director of global energy at Eurasia Group in New York, referring to last year's Hurricane Ivan, which jolted global oil markets for months.

"We have an economy that has shown signs of slowing. With energy prices at extremely high levels — and now moving above those levels — this is kind of a double whammy," Halff said.

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