Killer storms to rip $1bn out of Australian economy

The east coast floods will add to cost-of-living pressures and deal the national economy a $1bn blow over the year’s first three months, economists say.

The east coast floods will add to cost of living pressures and provide a $1bn blow to the national economy over the first three months of the year, economists say.

The hit to farmers in flood-­affected areas of Queensland and NSW could also drive a temporary rise in grocery prices, ­potentially pushing inflation above 5 per cent by the middle of the year.

Josh Frydenberg said there was an “enormous clean-up ahead” for the thousands of Australians caught in the floods, and the government was ready to offer further help if required.

The Treasurer said “with water levels still to fully ­recede in some of the worst-hit areas, it’s too early to know the full extent of damage to critical infrastructure and the knock-on effects to supply chains. Mercifully, these floods do not appear to have caused major disruptions to our ports or mines, unlike the 2011 Queensland floods, which led to a contraction in the March quarter.”

Opposition Treasury spokesman Jim Chalmers, however, criticised a lack of government spending on preventive measures to reduce the impact of natural disasters in flood-prone areas, promising that Labor if elected would put more money into mitigation measures.

A NSW Farmers Federation spokesman said it was still too early to predict the full cost of the disaster “but what we have heard from our local members is that every single commodity has been ­affected in some way, and the damage bill will be enormous”.

“We won’t know just how badly our agricultural supply chain and infrastructure in the area has been damaged until the flood waters subside,” he said.

“There can be no doubt this will likely impact the price and availability of some products.” Richard Shannon, policy manager at Queensland fruit, vegetable and nut farmers group Growcom, said the industry was still assessing the damage.

Flood damage in the Lockyer Valley.

He said the worst-hit area was through the vegetable-growing region of the Lockyer Valley, ­although the impact of the floods had been felt “across an enormous geographic area”.

Mr Shannon said it was unlikely shoppers would see higher vegetable prices or empty shelves, despite the devastation to farmers and their crops.

“The clean-up is well and truly under way, there are plenty of locals helping each other out. Of course, we continue to watch the skies,” he said.

KPMG chief economist Brendan Rynne estimated the state final demand in Queensland – excluding exports – would contract by 5 per cent, and by 1.5 per cent in NSW in the March quarter. That equated to a $1.1bn hit in ­national real GDP, Dr Rynne said.

Similar to previous natural disasters, “we would expect the June quarter 2022 to see a bounce back in economic activity associated with higher-than-normal spending by government and households in rebuilding and replacing household items destroyed by the floods”.

Dr Rynne said the March 29 budget “has got to be a reconstruction budget in the broader sense of the word: it needs to support a ­recovery from a pandemic and a natural disaster”.

AMP Capital economist Shane Oliver said the floods could shave about 0.2 percentage points, or about $1bn, from growth in the March quarter. With Omicron dragging another $2.5bn off growth over the first three months of the year, Dr Oliver said he expected the economy to expand about 0.8 per cent rather than the 1.5 per cent figure before the latest waves of Covid and floods.

Cuts to supply and fresh food would build on other “temporary” factors such as climbing petrol ­prices, he said.