-
A plume of steam rising 6700 metres from a crater at the Eyjafjallajokull glacier in southern Iceland - Source: Reuters -
Related
The economic impact of the volcanic cloud halting flights across
Europe will increase sharply the longer disruption continues,
forcing holiday cancellations, delaying deliveries and reducing jet
fuel demand.
African exporters of flowers and vegetables by air to European
supermarkets, technology companies relying on "just-in-time"
deliveries of components, event organisers and others could all
feel the pinch.
Economists say so far they have not changed their models or
predictions for European growth, hoping normal service could resume
this week. But in a worst-case scenario in which the ash cloud
closes European airspace for months, one economist estimates lost
travel and tourism revenue alone could knock 1-2 percentage points
off regional growth as long as it lasts. European growth had been
predicted at 1-1.5% for 2010.
"That would mean a lot of European countries wouldn't get any
growth this year," said Vanessa Rossi, senior economic fellow at
Chatham House. "It would literally stifle the recovery. But the
problem is it is incredibly hard to predict what will happen. Even
the geologists can't tell us."
The event is a classic example of a "Black Swan", a totally
unexpected event with widespread impact, impossible to predict and
hard to model.
The key questions now are whether the volcano keeps erupting and
spewing ash into the atmosphere, where the wind takes the ash and
how long the ash already in the sky remains over Europe.
Vulcanologists and meteorologists say they cannot immediately
answer those questions as volcanoes are particularly unpredictable.
They warn the last time the volcano under the Eyjafjallajokull
glacier erupted, it lasted more than a year. But it may not
continue to spew ash for the entire eruption.
Most had originally expected the cloud and disruption would linger
over Europe for several days.
Travel and tourism accounts for around 5% of global gross domestic
product - some $3 trillion - with Europe accounting for a third of
that, much of it accruing over the summer months. Not all of this
will be lost, but Rossi estimated a prolonged shutdown could cost
up to $US5-10 billion ($NZ7-14 billion) a week in the
industry.
But the impact will likely be wider. Most of the world's goods by
volume may move by sea and land, but transport analysts estimate 40
percent by value moves by air.
No "just-in-time"
The world's biggest air freight operators say they are moving what
they can by road and looking at contingency plans of using southern
European airports that are outside the cloud. But they say
deliveries will be sharply affected.
"If your just-in-time operation is depending on parts that come
from Asia or the US or Africa or the Mideast... , you just can't
get it," said United Parcel Service Inc spokesman Norman
Black.
"DHL and UPS use airhubs in Germany, Fedex Corp relies on an airhub
in France and all that airspace is closed. There's just not an
option right at the moment while we all wait and see how long this
is going to take."
Pharmaceutical firms are heavy users of air freight, but most said
on Friday they had enough stocks to avoid a short-term crunch.
Last-minute high-tech imports between Asia and the United States
are flown over the Pacific and will be unaffected, but European
firms may feel the pinch.
Most food and beverage deliveries move by sea, but some premium
products such as the finest Scotch whiskeys -- retailing at
hundreds of dollars a bottle in China or Japan - can no longer be
moved.
That could mean the most vulnerable national economies to the
shutdown could prove to be African producers of fruit and flowers
that will swiftly perish if not shipped to market.
"Kenya, as the largest supplier of cut flowers to Europe, where
tourism is also an important sector, is likely to be the most
vulnerable; followed by the East African soft commodity producers
more generally," said Standard Chartered chief Africa economist
Razia Khan, herself stranded in Botswana by a cancelled
flight.
The International Air Transport Association (IATA) estimates
airlines are losing $200 million a day from the shutdown, which has
caused chaos well beyond the immediate European airspace closed.
Most airlines will be uninsured for this loss, although insurer
Munich Re said on Friday it would consider offering cancellation
insurance in future should the crisis produce demand.
No money for government support
European airline shares dipped on Friday and will likely fall
sharply if it appears disruption will be prolonged. Even if the
wind shifts, ash clouds over the Atlantic and Arctic would continue
to disrupt flights to North America and Asia.
Analysts estimate the shutdown is reducing demand for jet fuel by
some two million barrels a day, last week undermining jet fuel
prices. This could filter into the wider oil price if the shutdown
continues.
The wider travel and tourism industry so far has suffered less. The
problem will be if the shutdown lasts long enough to deter future
travel.
"Right now the hotels have people who are stranded. If after a
while, no new people arrive, that hurts the hospitality industry, "
said Rajeev Dhawan, director, Economic Forecasting Center at the
Robinson College of Business, Georgia State University.
Even if the initial cloud clears, vulcanologists warn the same
thing could happen again for as long as the eruption under the
glacier lasts, further threatening struggling firms.
"If this had happened a couple of years ago, governments would have
had the money to step in and provide support," she said. "But right
now, after the crisis, that money isn't there. This could be enough
to push some weaker airlines and travel companies to the wall. It
couldn't have happened at a worse time. On the other hand, it could
all clear overnight and we could be back to normal by next
week."
It could be worse. Scientists say this eruption looks unlikely to
impact agriculture outside Iceland itself, in contrast to the much
larger 1783 Laki eruption, also on Iceland.
"They were famines in France due to crop failure and this might
well have been a factor in the French Revolution," said Professor
Steve Sparks, director of the Bristol Environmental Risk Research
Centre at Bristol University.
