The Reserve Bank and the federal government reckon the floods in Queensland and Victoria could lop half a per cent off economic growth, mostly in the December and March quarters.
They haven’t worked out the impact of the North Queensland cyclone last week, but we could find out more when RBA Governor Glenn Stevens appears in Canberra on Friday before the House of Representatives Economics Committee.
But yesterday the National Australia Bank had a go at estimating the impact of the floods (but not cyclone Yasi) in an addendum to its monthly survey of business confidence and conditions (conditions not surprisingly fell, thanks to the floods, but confidence bounced back from the downturn last month).
It said that over the financial year to June 30, the floods could knock growth down by around 0.9% or nearly twice the impact estimated by the RBA.
As a result of the survey the NAB said that it was possible the economy may have contracted in the March quarter, a conclusion some other forecasts have suggested.
We won’t have any idea until early June. The December quarter national accounts are out on March 2.
The NAB said yesterday that the result of its survey suggested that "with the market sector of the economy comprising 78% of GDP, this implies a direct GDP impact of 1.8% in the March quarter before government assistance".
"The survey questions about revenue, capacity utilisation and working days lost related to January and do not include losses sustained in December.
"We continue to predict a net impact (after government measures) on GDP of the order of 1½% (relative to pre-flood levels) across the December and March quarters."
The flood survey last month by the bank covered 363 companies in the non-farm sector, and excluded the effects of last week’s cyclone Yasi and subsequent additional flooding in Victoria and elsewhere.
Large companies estimated January revenues dropped as much as 5.1% because of the floods in Queensland last month.
Not surprisingly the NAB said Queensland companies were the hardest hit.
"The survey results suggest that the floods reduced national output by at least 5%, based on the revenue and capacity utilisation estimates.
"The loss of working days equates to 11% of a 31-day month (many small businesses work every day).
"It is however likely that the impact on the loss of working days has been partly offset by firms working longer hours when business resumed.
"About 22% of firms expect to operate below pre-flood levels of activity for another month or longer.
"Assuming losses of at least 5% in January and 1% in February and March, this would translate into a quarterly activity loss of 2.3% in the market sector of the economy," the NAB said.
"The economic impacts were concentrated in Queensland where business revenue was reduced by 9.8 per cent and capacity utilisation by 13.8 per cent,” said NAB chief economist Alan Oster. “However, significant disruption occurred across Australia.”
The NAB said its survey increases the likelihood that Australia’s economy may contract in the March quarter, with direct impact to gross domestic product growth of 1.8 percentage points before the positive effects of government rebuilding efforts kick in.
Once the government assistance of at least $5.6 billion – including the $1.8 billion from the proposed flood levy – is included, NAB predicts GDP growth will be 1.5 percentage points lower across the December and March quarters.
NAB said the industries that are most severely affected by the floods which devastated southeastern Queensland and the cyclone which hit the northern part of the state were construction, retail, agribusiness and mining.
Meanwhile the monthly business survey revealed the recovery in business confidence rebounded in January but a fall in conditions.
Both were expected.
Business confidence rose to 4 in January more than reversing the minus-3 reading in December, NAB said.
However, conditions slid 12 points to minus-6 in the same time and forward orders slipped to minus-5 in January from minus-3 in December.
"Mining, manufacturing, construction and finance were badly hit, and conditions fell to GFC levels in Queensland.
"Outside Queensland, conditions deteriorated into negative territory," the NAB said.
"Confidence rebounded strongly nationally, and especially in Queensland – consistent with a relief rally. However the results pre date cyclone Yasi.
"Further, forward orders, stocks and capacity utilisation all declined.
"The survey is consistent with domestic demand running at an annual rate of around 2¾% in Q1 and non-farm GDP of 1¾%. Labour costs pressures softened but there are signs of life for inflation."
The NAB said that its Australian growth forecast was also unchanged at 2.5% in 2011, reflecting the impact of Queensland, Victorian and Tasmanian floods, "including Large falls in mining, transport, tourism and farming".
"Our impact (0.9%) in 2010/11 is larger than Commonwealth’s (0.5%). And the near term hit over Dec / March is estimated at 1½%. Q1 weakness likely to be followed by investment boost as infrastructure is repaired giving growth of 3.5% through 2011 and 3.9% in 2012.
"RBA to look through temporary flood effects on food prices.
"Next hike to 5% still to be in May, but may be postponed because of
