Executive Summary

Tropical cyclones (TCs), are among the most destructive extreme weather events globally, causing an average of 43 deaths and USD78mn in economic damages daily. In the US, the economic costs have escalated dramatically, with the decade from 2010 to 2019 witnessing USD731bn in losses due to super-hurricanes Harvey, Irma and Maria. The current decade has already incurred USD460bn in damages, double the total losses from 1980 to 1999.

Global warming, increasing urbanization and the concentration of residents in densely populated coastal areas are set to worsen the impacts of tropical cyclones. Under most emission scenarios, except for the low-emission pathway (RCP2.6), the population exposed to tropical cyclones is expected to rise significantly by 2100. In a "hothouse world," the number of affected people could increase by 23% by 2050 and 84.2% by 2100.

While immediate economic losses from tropical cyclones are evident, the ripple effects on global supply chains and maritime trade often go unnoticed. Ports, which handle about 80% of global trade, face significant disruptions due to extreme weather, leading to costly downtime and widespread economic consequences. Major events such as Hurricane Katrina in 2005 shut down the Port of New Orleans for nearly four months, causing global grain shortages and spiking commodity prices. For instance, in 2023, tropical cyclones caused 117 days of port downtime globally. As climate change intensifies, these ripple effects are projected to worsen, with port-related export value at risk increasing by up to +38% to USD312bn.

Taiwan serves as a valuable case study due to its critical role in global supply chains and its high susceptibility to tropical cyclones (typhoons). Situated in the Western Pacific, Taiwan experiences three to four typhoons annually, with its mountainous terrain intensifying the impacts through severe rainfall, flooding and landslides. As the producer of over 60% of the world’s microchips, disruptions in Taiwan due to cyclones have significant ripple effects on global supply chains. Estimates suggest that cumulative external economic damages from TC-induced shocks could range from USD84.7bn to USD94.6bn by 2050. China, Taiwan's largest trading partner, faces the highest potential losses, followed by the US, Japan and South Korea. The primary sectors affected are computers, electronics and optical equipment. While Taiwanese companies bear two-thirds of the total TC-related damages on average, in some sectors such as electrical equipment and motor vehicles, the external damage share is above 50%.

From 2040 to 2050, the supply-chain disruptions caused by cyclones could halve future return expectations for the stocks of Taiwanese semiconductor companies, with cascading effects on global equity markets. Under the most severe climate scenario, annual growth rates for these stocks could drop from +8% to around +4%. Despite Taiwan's small economy, its dominant role in the semiconductor sector means that disruptions can ripple through global equity markets. The S&P500, for example, could see its returns reduced by 2pps due to cyclones, lowering long-term expectations to around +6% per year.

Without improved adaptation measures and enhanced resilience, the economic consequences of tropical cyclones are likely to escalate as these events become more frequent and intense. As climate change intensifies, more countries will surpass their resilience thresholds, leading to severe economic damage and weakened capacity to cope with future hazards. Investing in adaptation measures, such as improved infrastructure, early warning systems, financial safety nets and nature-based solutions, can mitigate the economic costs of tropical cyclones and raise a country’s resilience threshold. National Adaptation Plans (NAPs) under the UNFCCC are critical tools for adapting to climate change, with 140 countries engaged as of 2023. These plans are central to COP negotiations, particularly regarding financing, as developing countries seek significant funds for adaptation efforts.

While adaptation helps reduce the impacts of extreme events, it is not enough on its own. Limiting global warming to 1.5°C can significantly reduce the severity of tropical cyclones, thereby safeguarding economic stability. Key for effective climate-change mitigation is high carbon pricing that accurately reflects the true economic damage of carbon emissions and incentivizes emission reductions. Accounting for tropical cyclone damages would increase carbon pricing by +44% in cyclone-prone countries and by +22% globally.

Jordi Basco-Carrera
Allianz SE
Arne Holzhausen
Allianz SE
Jasmin Gröschl
Allianz SE
Hazem Krichene  
Allianz SE
Patrick Hoffmann
Allianz SE