Floods Won't Dent German Economy - Think Tanks

By Ulrike Dauer

Europe's biggest economy is unlikely to suffer a major setback from the dramatic flooding in Germany because the damage to buildings, roads and power supplies has been limited, an economic think tank said Monday.

And if some key industrial sites like Volkswagen AG's (VOW.XE) auto plant in Zwickau, the Porsche AG unit at Leipzig and the chemical park in Bitterfeld have had to stop production for a few days, the plants themselves weren't damaged, said the Institut der deutschen Wirtschaft think tank in Cologne.

While the national economy shouldn't suffer much, the flood will prolong the recession in eastern Germany, said another economic think tank that advises the German government. The Halle-based IWH Institut fuer Wirtschaftsforschung said the region would remain in a recession for the fifth consecutive quarter from April through June.

In the immediate aftermath of the floods, the three east German states most affected are likely to see activity decline in industries like agriculture, construction, tourism, the IWH said.

But Germany's economy will gain momentum once cleanup efforts begin, as was the case after the historic floods of August 2002, the IWH said. That disaster led to a surge in consumer spending and investment to rebuild the country's industrial infrastructure.

This could be encouraging for the government of Chancellor Angela Merkel, who is preparing a crisis meeting Thursday with the heads of Germany's states on how to share the bill for the disaster. Ms. Merkel faces elections later this year.

The floods began last week after days of heavy rain. Large swaths of Germany remain under water, mainly along the Danube and the Elbe. The Czech Republic, Austria, Slovakia and Hungary have also been hit.

The IW institute estimates the floods will cost the German economy at least 6 billion euros ($7.92 billion). That's far below the estimate late last week of some EUR11 billion from the Association of German Chambers of Commerce and Industry, which is on par with the costs from the 2002 floods.

By comparison, Germany's gross domestic product was EUR2.65 trillion in 2012.

The 2002 floods caused about $16.5 billion in economic damages across all of Central Europe, ranking them the fifth costliest worldwide since 1980, according to Munich Re AG, the world's biggest reinsurer. The insured loss was $3.4 billion, the second costliest flood for the industry since 1980.

Insurers and reinsurers say it is still too early for claims estimates. A Hannover Re SE (HNR1.XE) spokeswoman said the reinsurer needs to wait until water levels have declined everywhere before it can begin to calculate the insured damage. This will take several days.

Write to Ulrike Dauer at [e-mail]