A column of steam and ash rises out of an erupting volcano near Eyjafjallajokull April 19, 2010HO
Europe is tallying up the cost of its "Black Swan," a completely random, unpredictable event that fits into no worst-case economic model, and the numbers are getting big.
As European airports finished their fifth, largely idle, day, thanks to the stubbornly persistent Icelandic volcano, more industries complained about the loss of revenue and predicted catastrophe if the air travel suspension lasts much longer. But there were encouraging signs Monday that the flight ban would be progressively relaxed, beginning Tuesday morning.
Vanessa Rossi, a senior economic fellow at Chatham House, a London research institute, predicted that the air travel chaos, if it continues for months, could knock 1 per cent to 2 per cent off European growth.
"That would mean a lot of European countries wouldn't get growth this year," she told Reuters. "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."
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European growth was already expected to be weak in 2010, with estimates in the range of 1 per cent to 1.5 per cent. Some countries, like Greece and Spain, are still mired in recession.
On Monday, European flights reached only about one-third of their usual level despite indications Sunday evening that up to 50 per cent of European airspace would be open. The reluctance to open the airspace more quickly, due to safety concerns about the airborne volcanic ash, which can destroy jet engines, triggered a warning from German economics minister Rainier Bruederle.
"If chains of economic value are disrupted for a long time in a globalized world, we would have a serious situation, because many of our industrial sectors depend on transport by air," he said.
Mr. Bruederle invited industry representatives to the economics ministry Monday to discuss how to avoid further damage, though it was unclear what could be done as long as safety concerns remained paramount.
In an interview on Germany's n-tv, Volker Treier, the chief economist for the Association of German Chambers of Industry and Commerce, estimated that the grounded airplanes were costing German industry €1-billion a day.
Fears of economic damage, coupled with plunging demand for jet fuels, helped to push down oil prices on Monday by almost $2 (U.S.) a barrel, or nearly 3 per cent, to just above $81. Two weeks ago, oil was at $87.
While airlines were the biggest casualties of the travel ban - various estimates put their revenue losses at $200-million a day - other industries were suffering too. TUI, Europe's biggest travel operator, which owns First Choice and Thomson travel brands, said it was losing as much as £6-million a day.
Tourism accounts for about $3-trillion, or 5 per cent, of global GDP. Europe makes up about one-third of that total.
Logistics companies, such as United Parcel Service, Fedex and DHL, warned that just-in-time deliveries are in jeopardy as their French and Germany hubs remain paralyzed. They are using trucks where they can and are making contingency plans to use the southern European airports that are still open. Madrid's airport is one of them.
Imports of perishable goods - fresh fruit, vegetables, flowers - from Africa and Asia have come to a virtual standstill because of the flight havoc. While those imports are tiny by volume, their value is high. Kenya's Daily Nation newspaper said the flight cancellations are costing the Kenyan economy $3.8-million a day.
Eric Reguly