The Queensland floods and Cyclone Yasi have hit the economy hard wiping 0.4 percentage points off economic growth in the December quarter and expected to wipe off more than double that in the March quarter turning growth negative.
Describing the economy as "robust in the circumstances" Treasurer Wayne Swan said the December quarter growth figure of 0.7 per cent would have been 0.4 points higher were it not for the floods.
"Whether it's coal, whether its agriculture or tourism, the disasters have taken a heavy toll on output and a heavy toll on our budget, with worse to come in the March quarter," said the Treasurer.
"If they had occurred in any other developed economy it would not have been able to cope."
Treasury forecasts have one percentage point sliced off growth in the March quarter, enough to turn it negative in the view of Westpac economist Bill Evans...
"We are expecting minus 0.2 in three months time, a rare event for an economy not in recession. We are expecting higher growth later to claw back much of the loss."
Commonwealth Bank economist Michael Blythe described the dip as a "pothole".
"The weak result is an aberration rather than a change in direction. The momentum necessary to help absorb the weather-induced pothole is in place," he said.
Signalling further spending cuts to compensate for the downturn budget Mr Swan recommitted himself to budget targets while conceding the floods would take "a heavy toll" both in terms of higher spending on recovery and lower revenue from lost production.
"Lower corporate profitability will probably mean lower company tax revenue. A higher dollar also eats at revenue," he said.
Mining production fell 3.1 per cent in the quarter, agricultural production 1 per cent.
Production went backwards in 8 of the 17 industry groups, in part because of weak consumer spending which climbed just 0.4 per cent in the quarter.
"Consumers are showing the restraint the Reserve Bank is looking for," said ANZ economist Riki Polygenis. "We won't see a response from the Bank until they abandon caution or the labour market tightens.
Spending on cars slipped 3.8 per cent in the quarter to make way for a 2 per cent boost in spending on electricity and gas. The household saving rate remained high at 9.7 per cent.
A big boost in inventories suggests firms are gearing up for higher consumer spending which is yet to materialise.
The economy grew 2.7 per cent in the year to December, slipping to an annualised rate of just 1.6 per cent in the second half of the year.
Tasmania and Western Australia were the fastest growing states with final demand climbing 3.4 and 3.1 per cent over the year. NSW final demand grew 2.2 per cent and Victoria's 2.9 per cent. Queensland was the worst performing state on that measure, with final demand growing just 1.5 per cent over the year.
Published in today's SMH and Age
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