Posthaste: Natural disasters are costing Canada more than we think, analysts warn

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From the wildfires that tore through Jasper this summer to torrential rain in Toronto, natural disasters are taking an increasing toll on Canada.

There have been 38 per cent more natural disasters — floods, wildfires, extreme storms and droughts — in Canada between 2000 and 2020 than in the 20 years previous, says a new report from Scotiabank.

Money dedicated to rebuilding after these disasters soared by more than 400 per cent between the 2000s and 2010s.

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The damage goes beyond insurance claims, says John McNally, senior adviser of climate and socio-economic policy research at the bank.  Areas battered by extreme weather see increases in unemployment rates and declines in wages and home prices that linger for months, even years.

The wildfires in Fort McMurray stripped a full percentage point off gross domestic product in the second quarter of 2016 and the Canadian Climate Institute estimates by 2050 natural disasters will decrease GDP by about 0.8 per cent.

“Beyond  these costs, disasters can also lower tax revenues, destroy wealth in the form of infrastructure and assets, and impose opportunity costs by requiring capital to be directed towards rebuilding rather than more productive ends,” said McNally.

So far regions have been able to rebound from these disasters because money from insurance companies and governments finance the rebuilding, but both of these sources are showing signs of strain, said the report.

Provincial expenses for disaster relief and emergency response in 2023/24 were more than 200 per cent higher than budgeted for, with every province exceeding budget estimates.

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Insurance companies, meanwhile, are suffering historic losses with the four major weather events in Canada this year leading to a record number of insurance claims.

And the damage is expected to get worse, not better.

By 2030, Public Safety Canada estimates that total losses from natural disasters will reach an average of $15.4 billion a year.

“These higher costs may mean financiers under strain need to make hard decisions about how much support to offer impacted households in high-risk regions,” said McNally.

If that happens, communities in Canada may begin to experience disasters in different ways, he said.  Insurable areas will continue to rebound, while areas prone to flooding and wildfires will decline.

“Over the long-run, lower economic performance could be expected, and declines could prove difficult to reverse,” he said.

There are things government can do such as investing in resilience and adaptation projects, creating a national flood insurance program and collecting more economic data on the impacts, said McNally.

“Natural disasters will become a more frequent and expensive reality for Canadians going forward, and the country will need to change the way it responds to find a more financially sustainable path to prosperity in a warmer world,” he said.

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“Tragically, this era of hard conversations and difficult choices is only just beginning.”

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Today’s chart might give coffee fans the jitters.

Bean prices shot up 30 per cent in the past month on weather conditions in Brazil that went from drought to heavy rains, threatening future harvests.

Actually, prices have been rising for a while. Arabica prices are now 80 per cent higher than a year ago, and robusta has more than doubled in that time.

Rising bean prices are not expected to deter coffee drinkers, however. Capital Economics notes that the price of beans typically accounts for less than 5 per cent of the cost of a cup at the coffee shop.

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“Studies have unsurprisingly shown that coffee demand is not very responsive to changes in retail prices – people need their caffeine fix!,” said David Oxley, chief climate and commodities economist at Capital.

Coffee prices are dictated by supply and history suggests that they will subside only when that supply improves and coffee bean stocks are replenished, said Oxley. Unfortunately, this process can take years, not months.

• Canada’s big banks report their fourth-quarter and full-year results this week. Scotiabank kicks off the reporting season today, followed by Royal Bank of Canada and National Bank of Canada on Wednesday. Toronto-Dominion Bank, BMO Financial Group and CIBC report Thursday.
• Earnings: Salesforce Inc, Descartes Systems Group Inc

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What’s the biggest bubble of them all? Not the Magnificent Seven, not AI, try the USA. The U.S. now accounts for nearly 70 per cent of the leading global stock index, up from 30 per cent in the 1980s. Never before in modern history have global investors committed more capital to a single country.

The rationale for this is the earnings power of American companies, their global reach and leading role in tech innovation. These strengths are real, but one definition of a bubble is a good idea that has gone too far. Ruchir Sharma argues that awe of “American exceptionalism” in markets has now gone too far. Read more. 

Wealth builders

If Warren Buffett had a TFSA, how much would it be worth today? In a fun exercise, we used Canada’s tax-free savings account rules and Buffett’s Berkshire Hathaway average 19.8 per cent returns over 62 years to calculate what he might have ended up with in that registered account. Before you click on the answer, can you guess?

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

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Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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