With three-quarters of Queensland now declared a disaster zone, the impact is far-reaching. The most immediate and obvious impact to many has been flood waters inundating homes, properties and businesses. The most tragic has been the loss of life in the flash floods that affected the Toowoomba and Lockyer Valley regions, our hearts go to their families during this challenging time.
Many businesses remain closed. The Government are providing financial assistance including grants for household essentials and structural repairs for those without house or contents insurance through the Department of Communities, and a Disaster Recovery Payment of $1,000 through Centrelink for those adversely affected by the floods. There is also assistance payments available for businesses from the Qld Rural Adjustment Authority (QRAA).
As floods waters slowly leave our state, the rebuilding work has already begun. Tens of thousands of volunteers have been helping their friends, families and complete strangers clean up after the flooding. The comings months will see a huge upswing in the industry, commerce and supply of housing finishes and furniture. Much of this will be funded through insurance companies.
Jessica Irvine summarized the five main impacts to the economy in her recent article in The Age.
Some businesses have been wiped out, many have been brought to a standstill. Crops and livestock are destroyed, mines are filled with water. It is estimated half a billion dollars of sugar crops have been lost to floods, and miners are losing $100m a day in revenue.
Business researcher IBISWorld estimates $1.6b worth of crops destroyed, with other estimates at half a billion dollars of sugar crops alone. Queensland is responsible for 20% of Australia’s economy, exports over 60% of the world’s coking coal, and over 97% of Australia’s annual sugar crop.
The transport industry is set to lose over a billion dollars with trucks unable to move, and ships sitting off the Qld coast unable to load. Insurance costs are estimated as high as $6b, although the major insurers Suncorp and IAG have much of their risk reinsured by the likes of Swiss Re, Munich Re, General Re and Lloyd’s of London.
Figures for rebuilding costs are rough at best, IBISWorld expects $10b to be spent over the next two years. An estimated 90,000 kilometres of council roads are destroyed, and railway lines need repairs and assessment before being open to use. Electricity and mobile phone towers and lines are washed away. Brisbane ferry terminals need to be rebuilt.
The Federal Government will cover 75% of Qld State Government’s rebuilding costs, both of which will suffer a hit in costs and reduced future revenue, both state in stamp duty, payroll tax and mining royalties, and federal in company tax and income tax.
Economists vary on the immediate impact, with up to 1 percent of GPD loss anticipated in this quarter. Infrastructure and building work should see this reverse by the end of the financial year and as mines come back online to higher commodity prices, a healthy recovery in many sectors.
Inflation and Interest Rates
Agricultural prices are tipped to rise sharply under very short supply. Brisbane markets are open again today with what little produce has survived and can be shipped in. With lower production set to continue for some time the pressure on CPI will remain throughout the year.
With upward price pressure and limited produce supply and rebuilding and reopening mines to absorb the remaining scarce labour resources, it is expected that wages will be under pressure as well. If this happens, higher interest rates will follow.
Impact on investments
The impact for investment markets is varied. Specific companies which have physically been affected are being generally oversold. Insurance companies were initially sold hard before markets realised their limited liability through reinsurance. Mining related stocks have suffered short-term setbacks although in general should recover their loss positions with higher prices once back online. The biggest losers have been low margin high turnover retailers with lost revenue, and transport companies who have been on hold with little potential to recover lost production revenue.
The construction industry and related sectors are set to have a strong market as the huge rebuilding effort comes back online and the recovery in materials and industrial sectors have been signalled for rises in coming months by IBISWorld. The challenge with recovery is it may look good in one area, but it is always at the expense of capital and labour that would have been deployed elsewhere. Regardless, the “apparent” benefit may be enough to engage the RBA in further rate rises.
For more detailed information on the projections, please download the IBISWorld report here.