Wild weather in Queensland takes a hit on Australia’s economic growth

What happened?

Australia’s most notorious location for severe cyclones, has been hit yet again early last week with Cyclone Debbie. Tropical Cyclone Debbie became a category four at one stage and struck land between Bowen and Mackay (along the coast) on Tuesday with destructive winds and torrential rain. It is said to have caused billions of dollars of damage to homes, businesses and agriculture.

Major shortages of Sugarcane, Capsicum, Tomatoes and Eggplant expected in the short-term as major crops are obliterated by the storm.

Farmers were cut off from their crops for up to four days due to severe flooding in the region and some farmers say it will take years to re-establish crops. The months of May and June are said to be the months that Australians are likely to see significant price hikes in the affected crops, due to such a large dip in supply. Australians will especially notice the impacts of the limited supply of sugar as around 62% of sugar produced in Australia is harvested in this region. Although the full extent of impact has not yet been calculated, Bowens agriculture industry is said to be valued at $450 million with at least $100 million in damage. The whole region is valued at nearly $1 billion each year (of GDP). However, although the extent of the damage is significant, economists presume the impacts of the shortages on price will be mostly short-term unlike the drastic effects on price the banana shortages from Cyclone Larry (2006) and Cyclone Yasi (2011) managed to cause.

Major industries including Coal and Tourism expected to slow in the coming months.

Minor impacts on coal mines result in a slow in the production of coal in the coming months, but the impacts are expected to be fairly moderate and not create a massive impact on Australia’s Gross Domestic Product. However, the tourism industry has already dropped by 50% and is expected to stay relatively low over the next year, as this part of Queensland begins to rebuild.

Impact on Australia’s economic growth

Analysts predict the impact on growth will be low as the disaster occurred at the turn of the quarter. Loss in production is said to be made up before the end of the June quarter and therefore the disaster will not be reflected in the numbers. In fact, the repairs and need for new infrastructure will likely create a boost in economic activity over the coming quarters, however in the short-term, households are without homes and workplaces and businesses need to set out to rebuild, so current levels of living standards are low (material and non-material). GDP will reveal major losses in production of just less the $1 billion, with not only the loss in agriculture, but a disruption of exports.

http://www.abc.net.au/news/2017-03-31/queensland-farmers-and-crops-hit-hard-by-cyclone-debbie/8405422

http://www.abc.net.au/news/2017-03-28/cyclone-debbie-damage-could-cost-billions-insurers-warn/8393648

http://www.theaustralian.com.au/business/economics/cyclone-debbie-to-hit-economic-growth-raise-prices-cba/news-story/4c2ee35451651424d4902eee39cd288d

http://www.smh.com.au/federal-politics/political-news/once-the-storm-passes-cyclone-debbie-will-still-cost-you-20170331-gvasut.html

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11 Comments

  1. A Textbook case of Climactic Conditions causing a reduction in supply. I was amused to see market forces at work when my mother purchased heaps of bananas at the supermarket earlier this week, even though we already had some and we don’t eat many of them, because “The cyclone will mean they’re too expensive soon”. Of course we didn’t eat them, so now they’re being made into muffins we don’t need either. By attempting to avoid a shortage, my mother ended up compounding the shortage by buying what we didn’t need because the price was about to change. Human nature at it’s finest!

    Liked by 2 people

    1. That is a wonderful linking to market forces. Although, perhaps your mother was preparing for spikes in banana demand which would have been much more difficult to adhere to if prices had already risen. This could be applied to the cyclone in which the affected industries could possibly have prepared for this disaster by stocking up on their goods beforehand, buying more time for them to repair and avoid a market crash.

      Liked by 1 person

  2. the effects on other industries such as the coal and tourism are something i hadnt really considered as an effect of the cyclone, an interesting point for sure, but luckily for our economy, the effects of the cyclone on these industries isnt as big as on the agricultural industry, otherwise the effects on GDP might be even larger than before and far more noticable
    .

    Liked by 1 person

  3. Maybe rebuilding affected areas will compensate for the destruction from the cyclone. I guess more jobs would be created, but it probably still won’t have any large net benefit.

    Liked by 1 person

  4. At this moment, the exchange rate of AUD is low which means it is a good chance to export because other countries can spend less of their money to buy the products. However, the severe weather destroyed the agricultural products, causes a disruption of exports, which could be a great loss.

    Liked by 1 person

    1. Following this point usually following s shortage of local goods people would turn to imports for the sam goods, but with the current low exchange rate it is more expensive and therefore it is harder for households to buy these goods. This means that the material living standards would decrease for people that are not even directly effected by the climate conditions.

      Liked by 1 person

  5. Climate condition actually impact people’s living standard ( non-materials & materials) like the agricultural will damaged. And it’s immediately disadvantage for farmers cause they loss their profits after that they have to rebuild their crops and at that moment they cannot receive any outputs they should be input first. Therefore, as for farmers it’s so terrible thing during climate condition.

    Liked by 1 person

  6. It also happened not too long ago, and some of the same farmers that were hit last time were also affected this time. Would this not discourage them to continue to work as farmers? They lose profit and resources, and that will take a long period to set up again, so I dont see why they would continue to work in the area.

    Liked by 1 person

  7. This event could create some cost (push) inflation in the short term as a result of lower aggregate supply and bring us closer to the target rate of inflation. Also, in the longer term the increased economic activity created from the rebuilding could create some demand (pull) inflation, but productivity will also be increasing with demand so it will probably have very little effect.

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