Flood warning for the economy January 5, 2011 - 11:46AM
The worst flooding in half a century in Queensland could have a significant impact on the economy as exports are interrupted, Reserve Bank board member Donald McGauchie has warned.
On what can be seen at the moment, there�s very substantial damage to infrastructure,Mr McGauchie, who is also chairman of Nufarm, Australia�s largest supplier of farm chemicals, said today.The consequences to export income could be quite substantial.
Record rainfall triggered flooding across an area of Queensland the size of France and Germany, forcing towns to be evacuated, closing mines and spoiling crops. The state is Australias largest coal exporter and accounts for about 20 per cent of the $1.28 trillion economy.
Mr McGauchie said that while it was still too early to judge the extent of the damage, reports he received suggest it looks pretty severe.
He said if that were the case, the disaster would be discussed by the Reserve Bank board, which he has been a member of since 2001. The next RBA meeting is on February 1.
Export-coal prices in Newcastle, an Asian benchmark, gained 3 per cent in the three days to December 31 to $US126.10 a tonne, the highest level since October 2008, according to researcher IHS McCloskey. The price is for thermal coal used to make power. Coking coal, used in steelmaking, advanced 2.3 per cent.
Advertisement: Story continues below Mr McGauchie said that while reconstruction after the disaster was likely to spur the economy, it may face problems.
At a time when there are a whole lot of infrastructure projects in the economy, skills shortages and capacity shortages could make it harder to get some of the projects done quickly or make them very costly, he said.
That could have inflationary effects, he said, while noting it was still possible the damage might not be as bad as feared.
Australias wheat and coal industries are being hurt by the Old Testament-like floods, and investors should sell the Australian dollar against the euro, US economist Dennis Gartman said in his daily newsletter yesterday.
The Australian dollar dropped 1.8 per cent to $US1.0057 this week, the worst performance among the 16 most actively traded currencies versus the US dollar. The so-called Aussie traded at 75.56 euro cents, after reaching a record high of 77.35 euro cents on December 29.
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