If the past week has shown anything about the Australian economy it remains remarkably resilient.
It has withstood near record and widespread flooding in five states in the past three to four months, fires, Cyclone Yasi, sluggish consumer spending, political ineptitude, a very strong currency, the resources boom and soaring terms of trade, all of which carry the capacity to damage growth and possibly end 20 years of continuous growth.
And yet this week we have got a Reserve Bank commentary on the economy that confirms inflation remains much lower than anyone had forecast.
Labour markets are very strong, we have a solid corporate sector, booming exports, which will recover quickly from the impact of the floods, a higher level of consumer confidence than the surveys show with car sales in January much stronger than thought and building approvals and the trade account in January better than expected.
The latest problem, Cyclone Yasi came, flounced and bounced its way across northern Queensland, wetting everything in its broad path, flattening some crops, but not as badly as expected.
But sugar and banana crops took the expected hit with early indications that about 75% of the nation’s banana supply has been affected, with the cyclone hitting the major growing regions of Tully and Innisfail hardest.
The Australian Banana Growers Council (ABGC) said 95% of crops in those two areas were damaged, along with 80% of crops in the Kennedy area south of Cardwell.
Sugar crops were knocked flat in the region, but the full extent of damage may not be fully realised until harvesting begins mid-year.
The Australian stockmarket ignored Yasi closing 20 points higher.
The latest official housing and trade data show the Australian economy was solid in the last month of 2010.
The floods chopped 2,000 new car sales in Queensland, according to industry figures, dropped revenue for Tabcorp by $10 million last month, while the impact on home building and the trade account will start showing up in a month’s time when the figures for January are released.
Growth in the December quarter will probably avoid going negative, if the building approvals and trade figures are any early guide, but economists are not so sure about the March quarter which could take the brunt of the impact from the floods.
Building approvals in December were boosted by a big rise in the commercial area, such as townhouses and apartments, that’s probably down to bunched council approvals, but it could also reflect easier commercial finance.
And the trade account wasn’t as weak as some economists had thought it would be from the earlier flooding in the central Queensland coal fields.
For the Reserve Bank, this is all ‘noise’ and the central bank made it clear this week it will look though the impact of floods and cyclones to see what is happening to cost pressures and demand in the wider economy.
Yesterday we got a sense that the economy is still very solid and even if the impact of the floods is dramatic in the next couple of months, it won’t cause lasting damage.
Which means the RBA will be very alert, especially with commodity prices on the march.
Sugar prices hit new 30 year highs off the back of Yasi and copper remains strong, as do spot iron ore and coal prices.
But sugar prices fell 9% in New York after the damage caused by Yasi was assessed. They finished down 3.3% at 31.97c US in New York.
Banana prices will rise after Yasi because of the damage, just as they did in the wake of Cyclone Larry in 2006. And there will be a lot of useless talk about inflation before prices sink back.
And the RBA will look through this to later in the year, as it will tell us in its first statement of monetary policy on Friday.
Chemicals and explosives group Orica said yesterday the flooding in Queensland is expected to reduce group earnings by $20 million to $30 million for the four months to January 31, 2011.
"Damage to company assets and inventory has been relatively minor," Orica said.
"Subject to further adverse weather conditions, the company maintains previous earnings guidance."
And chemicals and explosives firm Incitec Pivot says Cyclone Yasi has disrupted fertiliser production and distribution in North Queensland.
Incitec Pivot has a fertiliser plant at Phosphate Hill, an acid plant at Mt Isa, fertiliser distribution centres in Cairns, Townsville and Mackay and port facilities at Townsville.
The company says about five days production at Phosphate Hill looks like being lost as a result of the storm.
Coal companies like Macarthur, New Hope, BHP Billiton and a host of others have all indicated they will be impacted to some degree by the Queensland floods.
Yasi’s insurance looses don’t look as bad for IAG and Suncorp as they did earlier in the week. The share prices of the insurers rose yesterday.
Overnight Thursday, oil reached $US103 a barrel and copper continues its surge, hitting the $US10,000 a tonne mark in London for the first time.
Once again the media and some economists jumped too early at the news that building approvals rose by the most in ten months in December.
From Bloomberg to some websites, the 8.7% rise was breathlessly reported, with only a couple of reports pointing out that the gain was driven by a 21% jump in the very volatile non private approvals (apartments and townhouses).
The Australian Bureau of Statistics said the rise in December more than offset the revised 3.9% fall (a fall of 4.2% originally reported). The overall rise in Decemb
