Perfect storm: As flood bill rises, Omicron and Ukraine compound economic damage
The floods would wipe .25 of a per cent of Australia’s economic growth in the March quarter with a more severe impact in Queensland, according to the State Government’s investment manager QIC.
An aerial view of Gympie at the peak of the flood. (Image: Supplied)
Treasury has already stated the cost to the economy would be about $1 billion with about double that cost attributed to flood repairs with preliminary estimates suggesting a .25 per cent hit to the state’s economy.
A report from QIC said the economic impact would not be as severe as 2011 but would still have a significant impact. Adding to that was the blow to the economy from the Omicron variant of Covid-19 and Russia’s invasion of Ukraine.
“However, there is likely to be an inflation impact at a time when prices in Australia are already rising above average rates,” QIC senior economist Matthew Peter said.
He cited the impact on agriculture and its likely effect on food costs while damages to homes had come at a time when rental markets, particularly in Brisbane, were tight and construction cost increases were running “extremely hot” at above 20 per cent a year.
“The floods have added further demand for labour and materials to repair or rebuild affected houses, as well as damaged infrastructure, which is likely to put additional upward pressure on new dwelling prices going forward,” he said.
However, the most recent floods did not impact the coal fields like they did in 2011.
“The final economic and inflationary impacts of current weather and geopolitical events remain highly uncertain,” he said.
“With recent inflation pressures coinciding with higher commodity prices stemming from the Ukraine conflict there is a greater change of upside surprises to inflation prints in the near term. How these play out will be key to how Reserve bank policy evolves over the rest of the year. ”
“In January, we estimated that the economic impact of the Omicron outbreak would be less severe than previous major Covid-19 outbreaks and would not derail the recovery, but could take as much as 1.5 per cent off growth in the March quarter.
“This would still result in positive growth in the March quarter, and encouragingly, positive retail sales and labour market data since then suggest the impact is likely smaller than our early estimates.”
He forecast economic growth for Australia would be .5 per cent for the March quarter.
“The conflict in Ukraine has since emerged as another major risk to the outlook though … the impacts on the Australian economy are expected to be manageable.”
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