Hamish McRae: America can withstand the shock of New Orleans. But can it learn the lesson on oil?

While the human toll of Hurricane Katrina remains uncertain and, indeed, disturbing, the economic effects are becoming much clearer. Or at least we can see the range of probable outcomes for both the US economy and the rest of the world.

It has gradually become apparent that the scale of the disaster is a lot worse than originally envisaged. At first, it seemed the damage done by Katrina would be of a similar magnitude to the four main hurricanes that hit Florida last year - a cost in the $20bn (£11bn) to $30bn range. What made this different was that it was one hurricane, not several, and hit a particularly vulnerable city.

And now it is clear that two further dimensions distinguish this event. One is that the main damage has been caused by floods rather than wind; the other, that there has been considerable damage to the US petroleum industry.

That so much damage has been caused by flooding means the clear-up will take longer. And the hit taken by oil installations means the impact will be felt not just in the US but right across the world.

More about energy in a moment. Coping with flooding is both more protracted and more expensive than coping with wind damage. It may be that the total bill won't be much larger than it was for Florida last year, as Louisiana and Mississippi are smaller in economic terms; there is, so to speak, more stuff to damage in Florida. But whether or not this is the case - and I suspect the ultimate number will be more like $50bn - the spending will take place over a much longer period.

Perversely, this will tend to add to US GDP growth, rather than subtract from it. That is because GDP is a measure of economic activity, not of welfare. In any rational sense, the people whose lives have been destroyed or disrupted are much poorer and society as a whole will have lower living standards. But the reconstruction of both the business facilities, including the port, and the homes of residents will involve a huge amount of economic activity.

So while the rise in energy prices will undoubtedly hit economic confidence in the short term, reconstruction will give a boost to it in the months ahead. The sad precedent for this disaster is the tsunami. There was immediate damage to economic activity but overall there has not been a large loss in terms of growth in the countries involved. Expect, with one vital qualification, for this lesson to hold in this instance too.

The qualification is the impact on US oil and gas production, and hence on world oil prices. We don't yet know what the long-term damage will be to American oil production, or to the country's refining capacity, but we do know that most of the production in the Gulf of Mexico has been shut down. That is about a quarter of US energy production.

The problem of a shortage of refining capacity existed even before the storm, so whatever happens to the world oil price, Americans will have to pay more for their petrol.

This cloud does, however, have a silver lining. The background here is that the proportion of Americans' disposable income absorbed by energy costs has been falling in recent years. The graph on the left, prepared by the economics team at Citigroup, shows that total energy spending was only 5 per cent of income earlier this year. That compares with more than 6 per cent in the cheap-oil 1960s and a peak of 8 per cent after the second oil shock in 1980. Americans use a lot of energy - nearly twice the amount we do - because it is quite cheap. But what is striking is that while the amount they spend on petrol has remained fairly constant, the sum spent on other forms of energy has fallen as a proportion of their income.

This raises an intriguing possibility - that this energy price shock will lead to a radical change in the purchasing habits of US consumers: they will start to buy more fuel-efficient vehicles.

In other words, the shock will nudge the US towards more sustainable energy use.

This presupposes that the oil price remains high. It will, of course, in the coming weeks and months. But it really is an open question whether the outlook for five or 10 years is a further rise to $200 a barrel, as some alarmists suggest, or a fall back to $40 to $50 a barrel, as (insofar as they will say) the oil companies expect.

For what it is worth, the oil market (as opposed to the oil companies) is signalling that it will stay more or less at present levels. The graph on oil futures was prepared by BCA Research before the hurricane, so it does not take into account the storm's impact. But as you can see, whereas at previous peaks the expectation was for a significant fall, this time not much of a fall is expected. I suppose the big force underpinning this view is the new and rapidly growing energy demand from China, which is currently securing as much supply as it possibly can.

There are still huge uncertainties. There will be some damage to US economic output in the short term, but it seems reasonable to expect that this will swiftly be made up. The danger is that the spike in fuel prices will do more to damage consumer confidence than at present seems apparent. Were that to happen, the US authorities have the obvious weapon of holding off from further increases in interest rates. Suggestions that the Fed might do this has weakened the dollar slightly.

But it would take quite a lot to undermine consumer confidence nationwide, and a pause in the rise in rates need not last long. The economy is still creating jobs, house prices are still rising and growth seems set to continue a while yet.

From the point of view of the rest of the world, the best outcome would be for the US economy to slow slightly but continue to grow steadily though next year. But it would be best were the US able to combine that growth with structural changes to energy use, so that the growth did not put such a large burden on scarce oil resources. That would indeed be a silver lining to what at the moment looks a horribly dark cloud.

Invisibles help, but the deficit is an eyesore

The UK is now generating more than half its export earnings from so-called "invisibles" rather than goods - a higher proportion than any other major country in the world. And if you add together visible and invisible export earnings, the UK is now number three in the world, behind the US and Germany but ahead of Japan.

These are two of the less-noticed elements of the annual balance of payments statistics, just published. The headlines were dominated by the huge trade deficit, nearly £59bn last year, and the overall current account deficit of £23bn. But the private sector invisible surplus last year was some £46bn, a new record. The other offset was the deficit in the government sector of nearly £11bn - mostly payments to Brussels, foreign aid and the cost of keeping troops overseas.

Of that £46bn, there was £20bn of surplus on services and £26bn of surplus on income from investments abroad. On services, we make a profit from the City and other business services, but we spend a lot on foreign travel, so we have an offsetting deficit there.

The bigger surprise is that we manage to make a net profit on foreign investment, for this is despite the fact that we own less abroad than is owned by foreigners in the UK. We seem to get a higher return on our investments than the return we pay to foreigners holding investments here. Thus last year we earned an 8.2 per cent return on overseas investments, while foreign investors in the UK averaged only a 6.6 per cent return.

Isn't it a bit hairy to rely on clever investment to cover our trade deficit? The intuitive reply of most people would be that it is probably safer to rely on exporting goods (as do Germany and Japan) rather than betting on the right investments.

But the surplus on investment income has been very solid, increasing year by year. Financial and business services, too, have also increased steadily. These are forms of income that are not, for the time being anyway, likely to be decimated by competition from cheap Chinese exports.

But that trade deficit is a little bit alarming, all the same, particularly as it includes oil exports which, at the present price, are great but will not carry on for ever.