Sunday, February 06, 2011

Expect worse. Swan on the economic impact

Hours ahead of today's fires.

"As I’ve flagged for a couple of weeks now, we expect that the floods will take ½ percentage point off the nation’s growth in 2010-11, with much of the impact in the March quarter. While it’s too early to tell what the full impact of Cyclone Yasi will be, we do know it will make what was already a very difficult situation even worse.

Even at this early stage, it’s clear that severe damage was done to crops, buildings and infrastructure in affected areas. The impact will be particularly devastating for local farmers. The region impacted by the cyclone contributes around $1 billion of agricultural production annually, and initial reports suggest at least half of that has been wiped out this year, including around 80 per cent of the state’s banana crop. Tourism will also take another hit, with the area directly impacted by the cyclone accounting for around 5 per cent of Australia’s tourism earnings. Some towns hit hard by the cyclone, like Mission Beach with the nearby Dunk Island Resort, are particularly reliant on tourism for employment and income.

Cyclone Yasi is also going to compound the cost of living pressures that families have already been facing from the floods. Before the cylone, we’d estimated that the floods would already add ¼ percentage point to inflation in the March quarter. The area hit by the cyclone produces some 90 per cent of Australia’s bananas and one-third of Australia’s sugar cane – so we’re looking at another big price impact here.

Preliminary estimates from Treasury suggest that Cyclone Yasi could add at least another ¼ percentage point to the CPI on top of that, perhaps even more.

But while this spike in fruit and vegetables is inevitable, we can take some comfort that this will only be temporary. When Cyclone Larry hit this part of Queensland in 2006, we saw banana prices rise something like 400 per cent, unwinding some months later."

Related Posts

. GDP to take a $7 billion hit, mostly in one quarter

. Knock me down with a feather - the levy that'll tickle