Floods, cyclone to pummel Australian economy in 1Q

AP News
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Posted: Mar 02, 2011 12:45 AM
Floods, cyclone to pummel Australian economy in 1Q

Australia's economy accelerated at the end of last year but would slump in the current quarter due to record floods and a major cyclone that destroyed crops and inundated coal mines, the government said Wednesday.

The economy grew by 0.7 percent in the three months to Dec. 31 on the back of record prices for iron ore and other exports, gaining pace from a sluggish 0.1 percent rate in the September quarter, according to Australian Bureau of Statistics figures. Growth for all of 2010 reached 2.7 percent.

Treasurer Wayne Swan said growth for the last quarter would have been 0.4 of a percentage point faster if not for the flooding that began in Australia's northeast in late December and turned vast swaths of the east coast into disaster areas through January.

Swan said damage from the rains, compounded by a cyclone that hit already flooded northeast Queensland in February, would slash 7 billion Australian dollars ($7 billion) and 1 percentage point from economic growth in the three months through March.

"Because we are in a strong position, we can handle the savage impact of these natural disasters, particularly as it will be felt in the March quarter," Swan told Parliament.

The economy is expected to gather pace against from April as farm and coal exports pick up and billions of dollars are spent on rebuilding infrastructure such as ports, roads and train tracks.

The flooding killed 35 people, damaged or destroyed more than 35,000 houses, an inundated downtown Brisbane, Australia's second largest city.

The government has warned that it will deliver a tough annual budget in May that will raise $3.8 billion to pay for disaster reconstruction while also fulfilling the government's promise to achieve a surplus within three years.

The government also plans to introduce a disaster tax from July to raise $1.8 billion for the reconstruction task over a year.

The government's key commodity forecaster, the Australian Bureau of Agricultural and Resource Economics and Sciences, reported on Tuesday that despite the disasters, exports from farming, mining, oil and gas are expected to rise 24 percent to $221 billion for the fiscal year ending June 30 due to rising global prices and demand.