Economic impact of the Big Wet in Queensland

The heavy rain, winds and floods that have resulted from ex-tropical cyclone Oswald have caused a large amount of human suffering and will have an adverse short-term impact on Queensland’s economy. I expect the adverse short-term impacts will arise mainly as a result of:

  • disruptions to coal production in Central Queensland,
  • loss of agricultural output in the Lockyer Valley and other regions, and
  • temporary suspension/reduction in normal economic activity in Bundaberg, Gympie, Laidley and other affected cities and towns from the Far North to the Gold Coast.

It’s still too early to come up with accurate estimates of these impacts, but some back-of-the-envelope estimates are possible. These estimates rely heavily on assumptions and guesses around possible impacts, but I think they might provide a sense of the order of magnitude of the likely impacts. (Of course, I would welcome any comments and suggestions.)

Regarding the disruption to coal production, the Queensland Resources Council (QRC) noted today that (Qld resources flood update):

Queensland’s export coal industry could take several weeks to resume full production in the wake of ex-tropical cyclone Oswald, Queensland Resources Council Chief Executive Michael Roche said today.

‘We are receiving reports of significant damage to the Blackwater and Moura rail systems that carry coal from the southern and central Bowen Basin to the Port of Gladstone, where operations have also been hampered by around 800mm of rain,’ Mr Roche said.

‘While the situation is still being assessed by network operator Aurizon, these rail lines to Gladstone could be out of action for up to seven to 10 days.

This is potentially a significant impact on Queensland’s Gross State Product (GSP), if it can be assumed that we lose, say, 10 days worth of coal exports out of Gladstone. Based on a range of assumptions taken from different sources, this could result in a loss of up to $200 million of GSP in the March quarter, or up to 0.3% of March quarter GSP.

There are no data at this stage by which to estimate the possible loss of agricultural output. The Lockyer Valley appears to be hardest hit, and while the loss of crops will have a very significant regional impact, at the State level it may only have a small impact on GSP, given that the Lockyer Valley produces only a few per cent of Queensland’s total agricultural output. While there will also be some crop losses in other regions such as the Darling Downs, there appears to be less concern about possible crop losses in these regions, and indeed there is an expectation there could be offsetting longer-term benefits through the impacts of much needed rain on the cotton and beef industries (see Big wet’s winners).

The impacts on GSP from the reduction in economic activity in affected centres are hard to estimate and depend on how long it takes for economic activity in these centres to return to normal. The most severely impacted centres of Bundaberg, Gympie and Laidley account for around 2% of Queensland’s GSP. If, say, in an extreme scenario, half a month’s output is lost from these centres, there could be a -0.3% impact on March quarter GSP. This loss of activity would be offset to an extent by the massive clean up and reconstruction effort that will need to occur in these centres, although this effort will be spread across several quarters and may not offset the adverse shock in the March quarter.

Based on these back-of-the-envelope calculations, at this stage I expect the big wet will result in a negative shock of around -0.6% of March quarter GSP, taking 0.15% off 2012-13 GSP growth which was forecast by Queensland Treasury at 3.75% (see the Mid Year Fiscal and Economic Review). The negative shock may be slightly larger than this if the disruption to economic activity elsewhere in Queensland (e.g. Cairns, Gold Coast) and possible impacts on Rockhampton (see Fitzroy River set to peak at 8.5 metres this Saturday night) are taken into account. As such, it may be that the negative shock in the March quarter could equal up to 1% of GSP, which would bring 2012-13 GSP growth down to 3.5%. Even if this is the case, the State economy should readily be able to endure the adverse economic impact of the big wet, although the impacts on particular regional communities will be severe.

The longer-term impacts of the big wet are much harder to judge. Obviously, it may have a negative impact on tourism, and it also might adversely impact interstate migration. Queensland must look a much less hospitable place to people living in NSW and Victoria, our major sources of interstate migrants. Queensland Treasury may need to reconsider its population growth projections.

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3 Responses to Economic impact of the Big Wet in Queensland

  1. Pingback: Growing list of impacts and costs of big wet | Queensland Economy Watch

  2. Lots to consider Gene. As far as I can tell there will be no negative economic impact from the FNQ region. These kind of events are annual relaities up here and Ex-TC Oswald was nothing more than a minor rain event with some associated winds in these parts. Cane growers up here will have been glad of the rain after a very dry start to the Wet.
    The biggest effect may well have come from the 24 hour outage of all Telstra services on Monday, but the fact that it was a public holiday means even that is unlikely to have had a measurable effect on economic activity.

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