Economic impacts of flooding

4 11 2011

For those looking for a thorough analysis of the economic impact of Thailand’s flooding, especially for global supply chains, readers recommend a story at the Financial Times. Reading the whole story there requires registration, but that isn’t onerous and doesn’t involve tons of junk advertising.

The story begins by noting that “No one thought about such a worst-case scenario,” with

some automotive component makers have been trying to hire divers to rescue their production moulds, which are expensive and difficult to replace.


More than 400 are dead, hundreds of thousands have been displaced and one-quarter of the crop in the world’s biggest rice-exporting nation has been wiped out. Seven of Thailand’s biggest industrial estates are awash and more than 700,000 people have been put out of work.

Japanese firms have been hard hit as the largest investors in manufacturing, with : “more than 450 out of the 2,000 Japanese factories there flooded.”

As hard disk manufacture is clustered in Thailand – roughly one-third of global hard disk drive production – it seems that:

“many PC makers … expect sales in the fourth quarter of this year to be impacted by supply constraints. Acer expects revenues to be down by 5 to 10 per cent on the third quarter and says hard disk drive prices have risen by 5 to 20 per cent.

Many firms will have some insurance. However, the the Thai finance minister says that insurers will be:

reluctant to renew policies until they see a comprehensive plan from the government to reduce the risk of flooding. The unpredictable way in which the crisis has developed, and the fear of further climatic woes ahead for the production centres of Asia, suggests it will be hard for insurers, governments and companies to agree on any cast-iron guarantees.

The Bangkok Post argues that:

The unforgiving floods continue to sweep closer to the heart of Bangkok, having already surged through the heart of the industrial zones in Ayutthaya and Pathum Thani, the contributors of roughly 22% of Thailand’s manufacturing output. The waters have entirely submerged seven industrial estates with a total investment of 314 billion baht.

The report adds that:

Some key export sectors have already been affected by the flood such as rice, the electronics and automobile industries. More industries lie in the floodways as the mass of water creeps out to sea through Samut Prakan and Samut Sakhon, which have high concentrations of food, textile, and garment makers. In the same area, Seagate still awaits its fate.

And the Post includes the following chart that summarizes the economic impact:

From the Bangkok Post

The impact of these floods are not just political – see our earlier post – but may be redefining in terms of Thailand’s economic development.