Friday, February 3, 2012

February Weather Slams Weak Economies of Europe, Boosts Growing U.S Economy

A killer cold wave descended upon Europe last week while most of the U.S. enjoyed moderate winter weather.  This week, while the the cold snap in Europe continues, even the extreme weather in the U.S has its benefits as storms across the southwest plains are providing relief to drought stricken Texas. Even Mother Nature seems to be conspiring to extend the decoupling between the economies of the U.S. and the Euro Zone. The weak European economies will be hurt by higher heating costs, disruptions to travel, and reduced agricultural output. The growing U.S economy will be boosted by a moderate cost of heating, extended construction season, and  areas of Texas benefiting from a break in the drought.

According to Bloomberg, consumption of natural gas in Poland is 41 percent higher than average winter  consumption while in Germany the cost of electricity is up by 14%. These two localized figures suggest that heating costs during the cold snap could be up as much as 50% across Europe. Natural gas shortage could become a major problem as the supplies from Russia have been curtailed. Food cost are likely to rise as the production forecast for the Russian and Ukrainian winter grain harvests are dipping as crops that are already stressed by drought are now being hit with extreme cold weather.

While a few weeks of weather differences will only be relatively minor factor in the difference in economic performance between the U.S and Europe over the long term, it must seem to the citizens of the Euro Zone that they can not catch a break.

2/10/12 Update
The extended duration of the cold spell is converting the economic damage that will result for this severe weather into much more than a blip. The economic benefits to the economy from the moderate December weather are being over written by the extended cold snap.  If the cold spell continues through the end of the month, as some are forecasting, 1st quarter GDP will take a noticeable dip. Tourism and transportation have suffered major setbacks. Thick ice has closed the Danube river in half a dozen countries and confined scores of ships to port on the busiest European waterway.  A ban on navigation is expected to remain in place for 10 days. 1000's of airline flights have been delayed. some industrial facilities may be asked to reduce operations in order to ensure adequate energy for warming households.

A aspect of the killer cold in Europe and the freaky weather in the U.S that is concerning is that it provides more evidence that extreme weather is becoming more common across the globe. According to meteorologist Stu Ostrow
Weather extremes have existed for as long as there has been weather on Earth. That’s a fundamental reason why as a meteorologist who is routinely observing them I was so skeptical for so long that anything was out of the ordinary. 
However, increasingly during the past decade or so, the extremes have been so frequent, and so extraordinary, and sometimes even at the same time and in such close geographical proximity to each other, that I have become convinced that something ain’t right. That while there have always been extremes, their nature is changing. This winter convinces me even further.
While the costs of this week's extreme weather are falling heavily upon Europe, it is far too early in the year to assume that the U.S economy will be able to dodge the impact of extreme weather for the rest of 2012.

Related Post
Extreme Weather Events - The Headwind Missing From Financial Predictions for 2012

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