Amid a lot of the reporting on the impact of the floods on the Queensland and Australian economies and on business, a couple of things have to be kept in perspective.
The most important thing to remember is that when reading about loss estimates for companies, for insurers, the economy, etc, the early estimates will almost certainly be the most optimistic.
The final cost will be higher and in many cases, much higher than any figure quoted.
Many companies, from coal groups like Macarthur, to insurers such as Suncorp and IAG, to the banks, to rural groups such as Aust. Agricultural and the paint group Dulux, face damage bills.
Many of these will prove to be higher than first reports because of greater damage, higher recovery costs and more expensive claims than expected.
Many homeowners and individuals, especially farmers, face higher costs from under insurance (or no insurance), meaning the pressure will be on state and the federal governments to fill the gap.
Some will want direct aid and subsidies, but many could miss out.
The state and local government face big bills to repair infrastructure.
The cost of rebuilding homes, schools, hospitals and other structures damaged in the floods in many centres will be higher than forecast because of inflation and the rising cost of building materials
In fact building and construction could be badly hurt from the inflationary demands on labour and resources from the rebuilding as it collides with the resources boom in Queensland’s coal and LNG.
But the Queensland economy could get a major lift in the medium term, although the early impact will be negative.
Queensland has been the worst performing of the states in the past couple of years and the impact from the rebuilding later this year and in 2011 could have a bigger impact than thought.
On Friday we had an early example of the way the first cost estimates tend to be the lowest.
Amid the many estimates of the cost of the floods to Australia, AMP Global Investors team of economists had suggested a figure of around $6 billion.
That was for the impact of the central Queensland floods and their impact on the coal, beef, aluminium and sugar industries especially.
But on Friday, Senior Economist, Bob Cuneen wrote
"AMP Capital Investors initially estimated last week that this flood cost would be approximately A$ 6 billion and 0.5% of Nominal GDP.
"Given the inundation in Brisbane this week, that original estimate now appears too low." He said costs could be as high a 1% of nominal GDP (around $A13 billion).
That, he said, would rival the cost of the Darwin cyclone in 1974 (Tracy) and the Newcastle earthquake in 1989, in original terms.
Mr Cuneen said the impact on the country won’t be damaging.
He pointed out that the federal government "is in a strong position to bear the main burden of recovery and rebuilding".
"Australia’s net Federal debt is very low by global standards (2010-11 Budget MYEFO estimate was net debt at 6% of GDP).
"Hence this Queensland tragedy will critically and firstly not break our will and finally not break our wallets," Mr Cuneen wrote.
And that’s also a view shared by others.
While the cost of Australia’s 2010-11 floods continues to escalate, Moody’s, the leading ratings agency, says the impact won’t hurt the strong Australian economy.
The ratings agency has retained its forecasts for GDP growth and interest rates in 2011, saying strengthening domestic demand will boost national expansion in the second half of 2011.
"The hit to the Queensland economy will drag on the nation’s expansion in the first quarter, but once reconstruction efforts get underway, growth will be stronger in subsequent quarters," according to Moody’s Analytics economist Matthew Circosta.
He says that despite the flood damage, the "rest of Australia, meanwhile, continues to grow strongly".
He points out the "buoyant labour market and rising inflation pressures point to further interest rate hikes in 2011".
Moody’s expects national economic expansion of 3.4% for the 2011 calendar year, with three interest rate rises increasing the cash rate to 5.5% by the end of the year.
Mr Circosta also said something that many reports forget to put in context.
Despite the disruption to people’s lives and business and activity in the flooded regions, the impact is localised or regionalised and the rest of the country goes on regardless.
He said domestic demand for goods and services remains fundamentally intact despite supply chain disruptions from the floods.
Mr Circosta said, "Households still have their jobs and incomes remain strong.
"Once floodwaters recede, transport links reopen, and business activity resumes, consumers will return to normal spending patterns."
"Job creation from reconstruction will boost incomes and spending."
He said increased government spending on emergency relief and rebuilding will further boost domestic demand.
That will be on top of healthy corporate profits and strong demand from China and emerging markets which are expected to stimulate company investment.
But there will be some short term impact on trade with exports cut, especially from Queensland and on tourism.
The sugar and beef industries have already seen an impact, small business will be hurt in the short term and the insurance sector will feel the financial weight of a surge in
