Spain's central bank on natural disaster impacts and resilience
Soledad Núñez, Deputy Governor of the Bank of Spain, detailed the profound economic consequences of natural catastrophes, exemplified by the devastating Valencia floods. She outlined the central bank's critical role in immediate response, short-term recovery, and long-term climate adaptation.
From devastation to swift recovery efforts
The devastating flash floods in Valencia on October 29, 2024, caused 230 fatalities and profound economic disruption.
Immediate impacts included a temporary GDP drop of 0.1-0.2 percentage points in Q4 2024, as sectors like trade and tourism halted.
The disaster destroyed over €17 billion in wealth in Valencia province, exceeding 20 percent of its 2023 GDP – a significant loss not reflected in GDP figures.
In the short term, reconstruction efforts and public support spurred a rapid economic rebound.
Increased spending by households and firms to replace damaged goods, coupled with extraordinary aid and compensation from Spain's Insurance Compensation Consortium (Consorcio), which processed €4.1 billion in claims by January 2026, jump-started activity.
The financial sector, despite €27 billion in affected credit, showed no systemic risk, though smaller local institutions faced greater, monitored impacts.
Long-term challenges and capital renewal
In the medium to long term, natural disasters present a dual challenge.
While the loss of productive capacity and wealth can negatively impact economic activity, potentially leading to business closures and diminished access to finance, the process of replacing damaged capital can stimulate growth.
Surviving firms may replace old assets with more modern and efficient alternatives, leveraging new technologies like AI to optimize production and boost productivity.
This renewal process can offset some of the lasting negative impacts on GDP, transforming a destructive event into an opportunity for modernization.
However, the overall long-term impact remains complex, balancing initial losses against potential gains from capital upgrades.
Proactive resilience, persistent gaps
The Banco de España's swift actions in monitoring and ensuring payment system functionality post-disaster were commendable.
Yet, challenges in conducting reliable climate risk stress tests due to data gaps highlight a persistent vulnerability in long-term preparedness.
While promoting adaptation is crucial, quantifying sector-specific damages remains difficult, suggesting comprehensive financial system resilience against future extreme events is still an aspirational goal.