The National Australia Bank yesterday released an updated gauge of the impact of the floods on our national economy.
Unfortunately this tragedy has spread through most of Queensland with many businesses having been forced to close and many people unable to get to work.
Of course others had more important priorities to deal with, including keeping their families safe and securing their property). The personal and social hardship caused by the floods cannot be over-estimated
It now appears that the negative effects on output will be larger than many originally expected, at around 1% of GDP, with further disruption to coal exports and loss of production in SE Queensland, particularly in Brisbane.
However, in its report the NAB expects substantial expenditure from the second quarter of 2011 onwards on clean up, reconstruction, rebuilding, restocking and repairs. They estimate this will have a positive effects on GDP leave growth through the year to December 2011 at around 4%.
What about inflation?
The floods are bad news for inflation with higher inflation expected due to higher fresh food prices.
The NAB is concerned that in the second half of the year there will be risks that the one-off effects of higher food prices could become entrenched in higher on-going inflation
Interest rates outlook
This disaster has only increased the risk of higher interest rates in the medium term, but they also mean that the RBA will not raise rates for a while, but this is mostly because the economy came off the boil a good deal in the 2nd half of 2010. This reflected higher interest rates, thrifty households (a higher savings ratio), the end of a number of Government fiscal stimulus programs and the higher Australian dollar.
The NAB still forecasts 0.5% of hikes in 2011, but the starting point may be pushed to the 2nd half of the year.
Source: NAB research
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