A week after Hurricane Katrina ripped through America's Gulf coast, estimates of the cost of repairing the stricken southern states and the potential effect on the US and global economies are growing daily.
Initially, economists thought that as the affected areas were relatively poor states, there would be a brief impact on the wider US economy before a rebuilding boom would help it recover, as happened after previous hurricanes.
But now it has emerged that the damage is much greater than first thought and the impact on oil and other commodity industries looks so severe that some experts fear the US economy could slow sharply, at least in the short term.
They also think the Federal Reserve Board may try to restore confidence among US consumers by calling a halt to the successive rises in interest rates that began last year.
The states hit by the hurricane and flooding - Louisiana, Alabama and Mississippi - together account for less than 3% of the overall US economy. But what matters to the wider economy is that the Gulf of Mexico produces about a quarter of US oil and gas, and much of the Gulf's production has been disrupted - possibly for months, if fears of extensive damage to undersea pipelines prove true.
Moreover, with the primary damage to New Orleans and the surrounding area being due to flooding rather than gales, nine refineries have been knocked out, possibly for a considerable time. That has taken out 10% of America's refining capacity at a time of strong demand and has pushed petrol prices up to record highs.
Sky-high prices
Hence the decision last Friday by the 26 member countries of the International Energy Agency to release 2m barrels a day of oil and petrol from stocks to prevent the US running dry. The announcement helped halt the surge in petrol prices that followed the disaster.
New Orleans is the second-largest port in the US and a huge storage depot for commodities such as grain, which are transported down the Mississippi river.
But the main impact on the wider economy is from energy prices and the potential blow to consumer confidence from sky-high pump prices, now well over $3 a gallon (43p a litre) on US forecourts.
Julian Jessop, of Capital Economics consultancy, said: "We are clearly more worried about the economic impact than we were initially. The subsequent surge in petrol prices has made an already bad situation much worse."
He reckoned annualised growth in the US, which was running at a robust 3.3% in the second quarter of the year, could be down to 2.5% by the fourth quarter.
Economists at Goldman Sachs think Katrina might knock 0.5-1.0 percentage points off US growth in the third and fourth quarters, especially if insured losses and rebuilding costs head towards $100bn (£54bn), as some are estimating.
"The hit to growth, expected to last through the year-end, will be larger than from other disasters for two reasons," they said. "First the scope of the storm and the area affected is much bigger, forcing larger and longer cutbacks in output. Second, the nation's energy output has been hurt and this is likely to force cutbacks in spending by the public."
Research suggests that every 10 cent rise in the price of petrol takes $11.4bn out of consumers' pockets a year. Given that prices had already risen sharply before Katrina, and have jumped since, the hit to consumption could be large.
Global Insight, a consultancy, has also become more concerned about the economic impact of the hurricane. It, too, expects third and fourth-quarter US growth to be down by 0.5-1.0 points. It forecasts petrol pump prices to remain between $3 and $3.50 for weeks if not months.
Its chief economist, Nariman Behravesh, thinks the Fed may halt rises in US interest rates, which have taken them to 3.5% and were expected to take them to 4% or higher by the end of 2005.
"[We] believe that, at most, the Fed will hike the federal funds rate another 25 basis points [0.25 percentage points] before the end of the year," he says.
Most economists think the economy will receive a boost from reconstruction spending but not until next year. President George Bush, under fire for his slow reaction to the hurricane, has already pledged $10.5bn for rebuilding, a payment that is likely to be the first of many, reducing the chances of shrinking the enormous budget deficit.
