Floods devastating huge areas of Australia’s eastern seaboard, including the nation’s third-largest city, look set to be the costliest natural disaster ever in a country known for climatic extremes, Australian Deputy Prime Minister Wayne Swan said yesterday.
The floods in the major resource state of Queensland, which have swept through an area the size of South Africa, and overnight in 46 towns in Victoria State, would not delay a promised return to surplus next year and in 2013, Swan said.
However, the huge rebuilding and cleanup cost could force difficult spending cuts.
The estimated cost of rebuilding the worst hit Queensland state alone stood at A$10 billion (US$9.8 billion), the Australian newspaper said yesterday, and the damage bill was rising fast as record flooding moved south to northern and western Victoria.
“It looks like this is possibly going to be, in economic terms, the largest natural disaster in our history,” Swan told Australian television.
“This is very big. It’s not just something which is going to occupy our time for the next few months. It will be a question of years as we go through the rebuilding,” he said.
Flooding has hit four Australian states since last month and the death toll from Queensland, now at 24, is expected to rise. The scale of the disaster has exceeded a 1974 cyclone in Darwin which left 43,000 homeless, although deadly 2009 bushfires in Victoria state claimed 131 lives, but caused less damage.
Central bank board member Warwick McKibbin last week said that the Queensland floods could cut 1 percent off growth — equal to almost US$13 billion, when lost production and infrastructure destruction were taken into account.
However, Australia’s CommSec, the investment arm of Commonwealth Bank, said economists were tending to over-estimate the economic and financial impact, with activity to be boosted in the longer-term through rebuilding, repair and refurbishment.
“The cost of the Queensland floods is probably more in the realm of A$3-5 billion,” the bank said in a research note.
JP Morgan said Australia’s inflation risk had intensified because of the post-flood rebuilding programs about to commence and given that the economy was already at “full employment.” The independent central bank could be forced to tighten rates more assertively in the medium term, it said.
Early forecasts from analysts suggest economic growth for the current quarter could be halved to around 0.4 percent.
The floods were also likely to cause a spike in some food prices, lifting inflation modestly in the current quarter, while the huge scope of the rebuilding could add to price and wage pressures later in the year.
As a result, analysts see little chance of the Reserve Bank of Australia (RBA) raising interest rates again in the next two to three months, but a heightened risk of tightening once the full impact of the reconstruction is felt.
Moody’s Investors Service also said that the Queensland floods would impact on banks if flood victims started defaulting on home and business loans.
The state’s Sunshine Coast tourism industry called for people to reconsider travel to Queensland after finding itself with up to 100 cancelation rates as a result of the flooding, hitting major resort towns like Noosa.
However, Moody’s said on the severe flooding in Queensland would not affect the state’s “Aa1” rating.
“The flooding will slow economic expansion and create fiscal challenges for the northeastern Australian state,” said Debra Roane, a Moody’s vice president-senior credit officer. “But the credit effect is ameliorated by anticipated commonwealth disaster relief and Queenland’s strong budget flexibility.”
However, despite the widespread flooding, Australia’s minority government, whose coffers are bulging from the resources boom, is unlikely face onerous spending pressure.
Economists suggest Swan will likely face only minor budget adjustments, with welfare and defense areas that could see spending cuts without risking voter support.
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