Bad weather ahead: Water-related risks can cost 7 large economies $5.6 billion

Droughts, floods and storms could wipe off $5.6 trillion (Rs 444 lakh crore) from the gross domestic products of seven countries during 2022-2050, according to a new study.

The United States will incur the highest losses ($3.7 trillion) among the seven countries studied, according to the report released August 29, 2022.

Storms will have the biggest economic impact (49 per cent), followed by flooding (36 per cent) and drought (15 per cent), the findings showed.

The study Aquanomics: The economics of water risk and future resilience by global professional services company GHD is the first to calculate the impact of water risk at a GDP and sectoral level. 

The seven countries in focus were the United States, China, Canada, the United Kingdom, the Philippines, the United Arab Emirates and Australia. They represent varied economic and climatic conditions.

The authors of the study suggested the following principles for governments, businesses, communities and the water sector to adopt:

• Adaptation: Build resilience into new projects
• Optimise: Improve performance of existing infrastructure with advanced technologies and data-driven insights
• Prioritise: Regeneration and use of nature-based solutions through adoption of a circular economy 

The research combined insurance data with econometric modelling to demonstrate the wider economic impact of increased future water risk.

The United Arab Emirates, one of the world’s driest countries, is expected to be the least affected, with projected losses of $27 billion.

Water risk is spread unevenly across the globe, the findings showed. The Philippines, Australia and the US are projected to experience an average economic decline of 0.5-0.7 per cent in annual GDP till 2050. 

For the UAE and the UK, despite having very different economies and water risk exposure, the average yearly impact to GDP is estimated to be 0.1 per cent. 

The study also presents the potential future impact on five critical economic sectors  — agriculture; banking and insurance; energy and utilities; fast-moving consumer goods and retail; and manufacturing and distributions. 

The manufacturing and distribution sector will be the most heavily affected by increasing water risk, facing total output losses of $4.2 trillion by 2050 due to impacts such as restricted industrial production processes, damaged assets and disrupted distribution, according to the study.

Despite the nexus between water and energy systems, the energy and utilities sector is estimated to be the least affected, with total projected output losses of $237 billion. 

The agricultural sector, vulnerable to both drought and extreme rainfall, could see $332 billion in losses by 2050. 

Estimated loss by sector (2022-2050)

Australia’s agricultural sector will feel the most significant economic impact of climate change. Its projected annual output losses are 5 per cent by 2030 and 8 per cent by 2050 — the largest in percentage terms in the entire study.

The study findings raise an urgent call for investment, innovation and cooperation across regional and national boundaries, presenting opportunities to transform both local and global water systems. 

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