Hurricane Katrina will erase 0.5% of third-quarter GDP in the United States, Standard & Poor’s predicts, but this will be offset in successive quarters.

S&P reported the damage caused by the hurricane was enormous, particularly in Louisiana and Mississippi. “With some estimates of total damage as high as US$50 billion, the damage would exceed Hurricane Andrew, previously the worst natural disaster to hit the U.S., even corrected for inflation,” it noted. Insurance claims are expected to top $25 billion. Andrew wrought $27 billion in damage, or US$43 billion in today’s dollars.

However, S&P also suggests the economic impact is likely to be limited. “The near-term disruption should reduce GDP in the quarter of the hurricane, but by less than many think, since most activity revives quickly after such an event and the rescue and repair activities count as additions to GDP.”

“Historically, the damage to ongoing production after similar events has been small. However, in this case, it may be worse because of New Orleans’ reliance on tourism, and even more so because of the impact on oil production and refining capacity.” In addition, S&P said, the resulting closure of the Port of Southern Louisiana, a major port for oil imports and agricultural exports, will hurt the trade deficit while the port is closed.

It predicted that, even if the disruption to oil production is temporary, third-quarter real GDP could be reduced by 0.5 percentage point. But, over the next three quarters, there is likely to be a positive impact of about 0.2 percentage point. However, it concedes that at this point these are only “wild guesses”.

Income will drop sharply as rent, profit and entrepreneurial income are reduced by the amount of the uninsured damage, S&P said. At the same time, the insured damage will cut into the profit of insurance companies. “These impacts are in addition to the lost output caused by companies closing down for the hurricane and its aftermath. The result will be an even more negative saving rate in the third quarter,” S&P noted.