What will the floods and Yasi mean for the economy?
Most Australians watched in disbelief as the devastation of the recent floods was broadcast around the world. Like most significant disasters, firsthand and television images will be etched in peoples’ minds forever. Then, just as most Australians were thinking our Queensland friends had consolidated all of their bad luck into the first month of 2011, cyclone Yasi hit Northern Queensland on 2nd February, flattening beachside towns and farm land.
“It will take months to restore basic infrastructure to those areas worst affect, but years to fully recover”, says Scott McWilliam, Homeloans’ General Manager of Operations.
So what does this mean for the local and larger economies? Surely, the magnitude of devastation must have a ripple affect into larger economies - the floods alone besieged an area larger than France and Germany.
Queensland makes up 20% of the Australian economy, provides 60% of the world’s coking coal and produces 28% of Australia’s fruit and vegetable production. IBISWorld downgraded Australia’s GDP forecast for 2010/11 from 2.9% to 2.6% following the floods, but before Yasi hit.
“The short term impact has a heavy weighting on the annual forecast, mostly due to lost coking coal production and crops having been destroyed,” says McWilliam.
“Some food prices are expected to rise in the short term as a result of the floods and cyclone. For example, bananas are expected to rise as high as $10 per kilogram.”
Loss of productivity and tourism will also have a short term economic impact. Brisbane and Ipswich were basically closed for a week as businesses shut their doors and commercial projects halted. Queensland tourism was doing it tough before the floods due to a stronger Australian dollar (fewer overseas visitors and more Australians travelling abroad), and torrential rain for over six weeks leading up to the floods.
It is not all bad news though. Whilst construction is temporarily on hold over large parts of S.E. Queensland, the rebuilding process is only a matter of when.
“The massive rebuild of flood affected areas has basically been underwritten by Federal and State governments”, says McWilliam.
It’s estimated $10 billion will be spent on major infrastructure projects including rebuilding roads and bridges, restoring power lines and reinforcing buildings over the next 2.5 years.
“This is great news for the local and regional economies as the supply of work will attract skilled labour from all over the country, who in turn will spend money locally,” McWilliam adds.
The impact of the floods on property prices has been widely speculated in the press over the last few weeks. Property prices generally fluctuate on demand and access to finance, even during periods of uncertainly. Property experts seem to differ on the depth and tenure of possible price adjustments in and around Brisbane but they all agree that houses close to creeks that flooded will drop by as much as 10%. The Brisbane River plays a key role in the local economy, so the overall attraction should help to create a price floor.
“Like residents generally pay a discount for buying on a main road, the same may apply for buying in the flood zones of Brisbane,” says McWilliam.