Bank of Spain puts cost of October floods at 0.2%/GDP in fourth quarter

7:38 am Wednesday, November 20th, 2024

By Jesús Aguado

MADRID (Reuters) -Catastrophic floods in eastern Spain last month are likely to have a negative impact of 0.2 percentage points on gross domestic product in the fourth quarter, the Bank of Spain said on Wednesday, also expecting a mild acceleration in inflation.

More than 200 people died in the deadliest flooding in Spain’s modern history on Oct. 29, most of them in the region of Valencia, where the flood-hit areas account for around 2% of Spain’s economic activity.

Flash floods after torrential rains swept away cars, bridges and homes, paralysed businesses and heavily damaged crops and industrial plants.

“Estimates are subject to significant uncertainty, but, based on previous weather-related events, the estimated impact on GDP is -0.2 pp in the current quarter, remaining negative one year later,” the central bank said in a presentation.

It also said the floods would trigger a rise in consumer prices of 0.15 percentage points.

Before the floods, the government had expected the Spanish economy to grow 2.7% this year, by far outperforming its European peers. Spanish consumer prices rose 1.8% in the 12 months through October.

The government has announced a 14.36 billion euros ($15.15 billion) aid package to help households and businesses cope with the economic impact from the floods.

Bank of Spain Governor Jose Luis Escriva said it would be desirable for such aid to be “temporary and specifically targeted” to affected industries to reduce long-term costs.

Damages to businesses in towns hit by floods could amount to over 10 billion euros, with banks’ loan exposure to the affected area worth around 20.6 billion euros, representatives for local firms and a Bank of Spain official said earlier this month.

On Wednesday, Escriva said the Spanish banking sector would be able to absorb the shock, including the smaller lenders most exposed to the worst-hit parts.

In total, the central bank identified almost 27,000 companies with outstanding loans and half a million loan holders in those regions.

($1 = 0.9478 euros)

(Reporting by Jesus Aguado and Emma Pinedo, editing by Andrei Khalip)