Australian economy slumps after twin natural disasters

Australia’s economy was hit by its heaviest contraction for 20 years in the first three months of 2011, data showed yesterday, shrinking 1.2 per cent on-quarter after wild weather rocked mining and farms.

The Australian Bureau of Statistics said gross domestic product saw its largest quarterly fall since the March quarter of 1991, when the nation was last in the grip of recession, as the weather hammered key mining exports.

“Flooding which began in late December 2010 combined with cyclones in both Queensland and Western Australia have had a significant impact on the March quarter activity,” the ABS said. However, the figures, which also showed a one per cent increase in growth from a year earlier, beat market forecasts of a 1.4 per cent fall in the quarter and on-year growth of 0.7 per cent.

The fall in net exports detracted 2.4 percentage points from growth, which Treasurer Wayne Swan described as the single largest hit to exports since records began.

The volume of shipments fell 8.7 per cent, Mr Swan added, “the largest quarterly fall in 37 years.”

Rallying commodity prices helped stave off a more dire outcome, driving the terms of trade 5.8 per cent higher than the previous quarter and boosting gross national income by 0.3 per cent.

The Reserve Bank’s commodities price index has risen 29 per cent in the five months to May to its highest level since records began in 1982, due largely to spikes in the cost of iron ore and coal.

It is the first contraction in Australia’s growth since the depths of the global financial crisis, when GDP fell 0.9 per cent in the fourth quarter of 2008 before rebounding on strong mining exports to Asia, dodging recession.

The Australian dollar surged half a cent after the data was released, firming to close at US$1.0743.

Mr Swan said the result was “unsurprising” in light of the unprecedented natural disasters.

The floods and cyclones in both northern and western Australia had cost $12 billion in lost production, $6.7 billion of which Swan said was in the March quarter, chiefly in the key coal mining industry.

Australia is home to the world’s largest coal export port and sends millions of tonnes of the fuel annually to Asian steelmakers and power companies, with total 2010 shipments worth Aus$43 billion.

Separate data Tuesday on Australia’s account deficit showed a 27 per cent slump in coal exports between the December and March quarters, with mines swamped and vital rail and port infrastructure damaged or destroyed.

Steelmaking coal shipments plunged $1.8 billion or 35 per cent in the three months to March, while thermal coal, burned to produce power, lost 39 per cent or $434 million.

Iron ore also took a hit from the weather, with exports down 7.7 per cent in the quarter.

But Mr Swan said the calamities were merely a blip in Australia’s broadly resilient growth, with the nation “just at the beginning” of investments worth $430 billion, mostly in the resources sector.

“Despite the magnitude of the disasters that we’ve seen in the March quarter they have not altered the strong underlying fundamentals of the Australian economy,” said Mr Swan.

Analysts backed Mr Swan’s optimism, tipping a bounce in the June quarter due to resilient domestic demand and private consumption and recovery in the disaster-hit north.

“You actually had domestic demand up 1.3 per cent, in stark contrast to the headline number, which was weighed down enormously by the disruptions to exporters,” said Westpac economist Huw McKay.

“The economy is relatively strong, backed up by a very tight labour market, and this is a temporary disruption.”

The government last month forecast growth of 2.25 per cent in 2010-11, recovering strongly to four per cent the following year.