Counting the economic costs of Australia's floods
The flooding crisis in Queensland has already adversely affected Australia's economy and more pressure is inevitable.
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EARNINGS
The flooding crisis in Queensland has already adversely affected Australia’s economy and more pressure is inevitable.
“The economic impact already is material, with the risks skewed towards being even larger,” according to Stephen Walters from JP Morgan Australia which downgraded its Aussie GDP forecasts last week for 2011 (to 3.3% from 3.7% due to lost coal exports, damaged food crops, and lost service sector activity).
“Recent developments mean we probably will push through further growth downgrades in coming days, depending on how quickly the floodwaters subside and how much damage is done in Brisbane, in particular,” Mr Walters said.
He added that the eventual cost to the Australian economy could be as high as 1% of GDP (A$13 billion) if the damage to infrastructure is severe – the Port of Brisbane, for example, Australia’s third busiest, is closed, and may be for several days.
More damage to the economy, Mr Walters said, means an even larger reconstruction effort, so the expected “V-shape” of the cycle becomes even more exaggerated.
“This increases the risk that while the RBA will tread carefully in the near term, officials may be pushed into tightening policy more assertively later, as cost and wage pressures build. We have not changed our medium term RBA call, but it is under constant review.”
The Reserve Bank of Australia currently has official interest rates at 4.75%.
Mr Walters said there would obviously be an effect on state and federal government finances although with flood waters rising and rain still falling this couldn’t be quantified yet.
Things such as lost tax revenue and production, infrastructure repair and spending on relief measures would all form part of the eventual mix.
NBR staff
Wed, 12 Jan 2011
Wed, 12 Jan 2011
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Counting the economic costs of Australia's floods
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