Due to the rise in natural disasters, their effects on the economy are becoming more damaging.
While current estimates suggest natural disasters impact global economies to around US$200 billion annually, research from the United Nations Office for Disaster Risk Reduction (UNDRR) found the amount was closer to US$2.3 trillion.
According to the UNDRR report, financial losses from disasters have doubled in the past two decades worldwide.
Impact on Australia
In Australia alone, Treasury analysis estimates natural disasters have already cost the nation A$2.2 billion in the first half of 2025 and wild weather claims in 2025 have already surpassed those in 2024 in just the first five months.
In Autumn alone, NRMA received 15,840 wild weather claims, largely driven by Ex-Tropical Cyclone Alfred.
“In the first five months of 2025, we’ve received more than 32,000 wild weather-related claims. The data confirms what we already knew; wild weather is increasing in severity and frequency and the impacts on people and communities have been devastating,” NRMA Insurance Executive General Manager Direct Claims, Luke Gallagher said in a media release.
In the first quarter of 2025, the Australian economy grew 0.2% and 1.3% since March 2024, marking the strongest growth detraction since September 2017. According to ABS data, weather impacts were particularly evident in mining, tourism and shipping.
Despite the grim update, Treasurer Jim Chalmers still shared an optimistic outlook, adding that interest rate cuts were on the way.
“There are some temporary factors in this quarterly outcome. There are natural disasters in here, not just [Cyclone] Alfred, but the flooding in Townsville and Cairns and surrounding communities earlier in the year,” he said.
“The fall in public demand [is] because some of the big state projects came off. So we shouldn’t over-interpret that March data. But growth is softer than we would like it to be, and I’m confident that growth will accelerate in our economy.”
The disasters at the start of the year also led to a 0.3% drop in national spending during March, following steady growth in January and February.
Queensland unsurprisingly had the largest drop of 1.3% after ex-Tropical Cyclone Alfred tore through the state in late February this year. Transport and health were the most impacted sectors in Queensland, with food spending rising by 2.9% due to people stockpiling prior to the cyclone.
The Australian government is even working natural disasters into the budget more and more.
The federal government allocated A$11.4 billion into the 2024-25 budget to continue supporting ongoing recovery events, with this number rising even higher to at least A$13.5 billion in the wake of Tropical Cyclone Alfred.
State budgets have followed suit, especially in Queensland and NSW, which were most impacted by natural disasters earlier this year.
The Queensland Government allocated A$2.7 billion to disaster recovery in 2024-25 and $6.1 billion over the 2025-26 to 2028-29 period. NSW allocated A$4.2 billion to disaster relief across forward estimates, including Australian Government contributions.
However, EY chief sustainability officer for Oceania Mathew Nelson told Azzet that this could harm other parts of the budget.
“When governments must allocate such significant sums to disaster recovery, other spending options are reduced, or debt must rise to fund it,” he says.
“Neither outcome is desirable.”
Impacts on business
Nelson suggests that businesses can also be heavily impacted by natural disasters in “three dimensions”.
“First is property damage caused directly by a weather event. Second is loss of business, which could be due to forced closures or impacts [on] staff, customers and infrastructure. Third is the broader economic impact of a widespread event,” Nelson says.
Expertise fellow in the department of management and marketing at the University of Melbourne Dr George Panas tells Azzet that while all sectors are vulnerable to the impact of natural disasters, some, like agriculture or offshore petroleum operations, feel more direct impacts.
In particular, businesses can feel the pain of a natural disaster in their supply chain. This is due to the impacts that extreme weather events can have on infrastructure.
“This leads to delays that extend along the end-to-end supply chain, which all have an impact on downstream customers,” he says.
“For example, if I can't get a component from a supplier due to disruption at that supplier, I can't manufacture my items, hence I can't supply my customers.”
Panas says international natural disasters can also affect Australian businesses due to their reliance on overseas suppliers, leaving retailers without stock.
“Natural disasters overseas in sourcing regions will impact the movement of goods from origins that have experienced disruption events,” he says.
“For example, a typhoon in southern China will delay shipments out of ports at origin, impacting the arrival of merchandise into Australia.
“This will impact businesses and ultimately Australian consumers.”
Panas suggested businesses can navigate natural disasters is by developing greater resilience in their supply chains.
Some ways he says businesses can do this are through identifying where the main risks are on the supply chain, investing in redundancy, developing flexible and agile processes and scenario building for potential future disruptions.
