Scott Murdoch and Tracy Lee
THE Queensland floods may end up costing the economy $13 billion through lost productivity and damage to key infrastructure.
And the rebuilding process is likely to put growing pressure on inflation.
Large parts of Queensland and its capital Brisbane remain inundated, and there are grim forecasts that the worst floods in more than three decades could wipe at least 1 per cent off the nation’s economic growth projections.
Despite the inflation concerns — from higher food costs and the rebuilding of Brisbane — the short-term futures market now predicts the Reserve Bank will keep interest rates on hold until early next year. The Port of Brisbane, the third-busiest port in Australia, is expected to remain closed for the next few days.
Work has also stopped on at least $5bn worth of commercial projects.
Business in the state’s southeast has stalled, and more Australian companies warned yesterday that the floods were affecting their Queensland operations.
Citigroup estimated it could cost up to $20bn to rebuild houses and infrastructure, including key rail networks, destroyed in the floods.
The federal government is expected to cover between 50 per cent and 75 per cent of the flood costs, and economists warn that the disaster may make it difficult for Labor to meet its commitment to return the budget to surplus by 2013.
Julia Gillard has said she believes the budget will still return to the black on schedule, prompting speculation that the government may cut spending in other areas. The cost to the state government will be at least $2.5bn, and the Queensland Treasury Corporation may be forced to issue more bonds to help pay for repairs.
The dollar remained under pressure yesterday, falling to a one-month low of US98.06c before a late rally to US98.51c.
JPMorgan chief economist Stephen Walters said the impact on the national economy would worsen while the state’s vital infrastructure remained unusable or damaged.
“The recent developments mean we will probably push through further growth downgrades in coming days depending on how quickly the floodwaters subside and how much damage is done in Brisbane,” Mr Walters said.
“The eventual cost to the economy could be as high as 1 per cent of GDP ($13bn) if the damage to infrastructure is severe.”
Citigroup chief economist Paul Brennan said the loss of national income from lower production in Queensland could be offset by the spike in spot commodity prices and the high terms of trade.
Mr Brennan also forecast that inflation could rise by up to 0.2 per cent in the second and third quarters of 2011 once rebuilding starts to gather pace.
“As long as the price increases did not feed through into inflation expectations, we would expect the RBA to look through the additions to CPI from the floods,” he said.
However, the short-term futures market predicts the floods and the associated economic impact could prompt the RBA to keep interest rates on hold for at least a year.
Deutsche Bank strategist David Plank said Australia’s broader economic foundations and its trade ties to China would help the RBA maintain its tightening bias.
“The floods have pushed out the timing of the next rate hike by the RBA until early 2012,” Mr Plank said.
“We suspect the market view on this will be wrong as long as China keeps (growing) strongly.”
The knock-on effect of the Queensland floods has been felt across several industries. Coalminers, insurers, transport logistics providers, contract miners and some retailers have been among the hardest hit.
Suncorp warned that the floods could cost up to $150 million, with at least 2500 claims. IAG and the RACQ said there had been at least 1600 claims for both groups.
Flooding has shut down production at several coalmines. Macarthur Coal has slashed profit guidance by more than 20 per cent. Smaller producers such as Cockatoo Coal have also suffered.
Those who supply services to miners and operate mine sites and equipment have also been hit by the flooding.
Industrea said yesterday it was unable to perform any work at Cockatoo’s Baralba mine, for which it holds the whole of mine contract.
Larger contract miners such as Leighton Holdings and Downer EDI were estimated to have a combined $1.8bn in revenues exposed to revision from flood damage.
Transport and logistics groups have also struggled to cope as major rail access routes and roads remain flooded.
Linfox Logistics and Queensland-based trucking group Nolans between them have more than 250 vehicles stranded across the state.
Rail operators QR National and Asciano, owner of the Pacific National rail group, are expected to post losses on restricted coal haulage volumes.
Source: www.theaustralian.com.au
