Since weather extremes happen abruptly, there’s no smooth adaptation of capacities and prices at least for a short period of time.
In most cases, this will get passed down to the consumer. Firms have to pay more for their production goods. “Supply shortages increase the demand and that increases the prices. “The phenomenon of economic ripple resonance means that two separate incidents send shock waves through the world economy, and those waves build up – like a tidal wave,” says Anders Levermann department head at Potsdam Institute and scientist at Columbia University in New York, who led the author team. Specifically China, due to its prominent position in the world economy, shows an above-average effect of more than 27% of extra losses when extreme events overlap compared to when they hit independently from each other.
While not all countries suffer from the ripple resonance effect, most countries which are economically relevant do. The researchers modelled the response of the global network, calculating 1.8 Million economic relations between more than 7000 regional economic sectors.
Now the researchers find that these propagated effects do not just add up but can in fact amplify each other. It is known that the economic shocks also propagate in the global trade network. Generally, extreme weather leading to, for example, the flooding of a factory does lead not only to direct local output losses. This is what we see in our simulations of heat stress events, river floodings, and tropical cyclones and it is a most worrying insight.” But when extremes overlap economic losses in the entire global supply network are on average 20 percent higher. “The effect of weather extremes in our globalized economy yield losses in some regions that face supply shortages and gains in others that see increased demand and thereby higher prices. “Ripple resonance, as we call it, might become key in assessing economic climate impacts especially in the future,” says Kilian Kuhla from the Potsdam Institute for Climate Impact Research, first author of the study.
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