Floods and wild fires could reverse growth

A drop in coal and agricultural exports forced by Australia’s flood and cyclone disasters could “thump” its economy in the first quarter, forcing growth into reverse, Treasurer Wayne Swan has warned.

The calamitous weather that has battered resource-rich Queensland state since December could cause the robust economy’s first contraction since the height of the global financial crisis, Mr Swan told The Australian newspaper.

“There is no doubt that the natural disasters will thump our economy in the first quarter of this year,” Mr Swan told Tuesday’s edition of the newspaper.

“As it stands, you couldn’t rule out a negative in that quarter,” he cautioned.

The coal industry, which flooding virtually shut down in Queensland last month, stood to lose about A$5 billion in exports, while agricultural production could take a A$2 billion hit, he said.

Farming organisations have estimated that top-strength Cyclone Yasi, which bombarded Queensland’s sugar and banana heartland, could cost those industries at least A$800 million.

Mr Swan said current revenues were A$110 billion lower than had been forecast for the period in the 2007-08 budget and said Canberra faced significant challenges balancing the demands of the mining boom with consumer caution.

The Treasurer also warned that labour shortages were “not a theoretical construct” but would become a pressing reality, with the jobless rate at five per cent a level consistent with full employment.

“As we go through the next 18 months or so we’ll have an economy that is reaching the limits of its capacity,” he said.

But Mr Swan stressed that Australia’s fundamentals were strong and any hit to growth would likely be confined to one quarter.

“The longer-term prospects for the economy are strong, with a strong pipeline in resources investment,” he said.

“The worst floods in 50 years across northeastern Australia will harm Australia’s coal exports and shave economic growth in the first half of 2011, but our robust outlook remains intact,” Ratings agency Moody’s said in a report published yesterday.

“Improving weather and reconstruction efforts will push up growth in the second half of the year. On balance, our full-year GDP growth forecast of 3.4 per cent in 2011 remains unchanged.”

Growth was already slowing before the disasters hit, rising just 0.2 per cent in the three months to September to an annual rate of 2.7 per cent due to earlier weather impacts on the coal industry and the strong Australian dollar.