Disasters from Internet

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Date Submitted: 09/13/2011 06:11 AM

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Box A: The Impact of the Recent Floods on the Australian Economy

The eastern states of Australia experienced very high rainfall in the second half of 2010 and early 2011 due to the development of a La Niña weather pattern and then Cyclone Tasha in December. Subsequent flooding affected Queensland (including Brisbane) in particular, although there were also floods in parts of Victoria and New South Wales. While information is still incomplete – and there could be further weather-induced disruptions in coming months – this box sets out initial estimates of the effects of these events on GDP and inflation. The analysis does not include any effects from Cyclone Yasi in north Queensland, as little information was available at the time this document was finalised.

In terms of the economy, natural disasters such as floods are a negative supply shock as production is disrupted and public infrastructure, homes, cars and business assets are damaged. In terms of demand, spending is initially delayed but then increases as the disruptions ease and the repair and replacement of damaged assets gets under way. While production and consumption spending generally bounce back fairly quickly, the repair and rebuilding of damaged public and private assets is often spread over a number of years. This reflects the time it takes both to plan new building projects and to reassess risks in terms of the location and resilience of homes and other fixed structures to future similar events. The price effects associated with floods are most pronounced in the short term, with a temporary increase in prices due to loss of crops and transport disruptions.

Impact on GDP in the Near Term

The largest impacts of the rains on the path of GDP are likely to be in the December, March and June quarters, primarily due to the disruption to coal production. Starting in early December, the rain and flooding significantly affected the Bowen Basin coalfields, Queensland's primary coal producing region...