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Disasters may reverse Aus growth

Feb 08 2011 07:59 AFP

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Sydney - A drop in coal and agricultural exports forced by Australia's flood and cyclone disasters could "thump" its economy in the first quarter, forcing growth into reverse, Treasurer Wayne Swan has warned.

The calamitous weather that has battered resource-rich Queensland state since December could cause the robust economy's first contraction since the height of the global financial crisis, Swan told The Australian newspaper.

"There is no doubt that the natural disasters will thump our economy in the first quarter of this year," Swan told Tuesday's edition of the paper.

"As it stands, you couldn't rule out a negative in that quarter," he cautioned.

The coal industry, which flooding virtually shut down in Queensland last month, stood to lose about Aus$5bn ($5bn) in exports, while agricultural production could take a Aus$2bn hit, he said.

Farming organisations have estimated that top-strength Cyclone Yasi, which bombarded Queensland's sugar and banana heartland, could cost those industries at least Aus$800 million.

Swan said current revenues were Aus$110bn  lower than had been forecast for the period in the 2007-08 budget and said Canberra faced significant challenges balancing the demands of the mining boom with consumer caution.

The Treasurer also warned that labour shortages were "not a theoretical construct" but would become a pressing reality, with the jobless rate at 5.0%, a level consistent with full employment.

"As we go through the next 18 months or so we'll have an economy that is reaching the limits of its capacity," he said.

But Swan stressed that Australia's fundamentals were strong and any hit to growth would likely be confined to one quarter.

"The longer-term prospects for the economy are strong, with a strong pipeline in resources investment," he said.

Ratings agency Moody's supported Swan's view, saying disaster recovery efforts would stimulate the economy in the second half of 2011, sustaining growth in the longer term.

"The worst floods in 50 years across northeastern Australia will harm Australia's coal exports and shave economic growth in the first half of 2011, but our robust outlook remains intact," Moody's said in a report published Tuesday.

"Improving weather and reconstruction efforts will push up growth in the second half of the year. On balance, our full-year GDP growth forecast of 3.4% in 2011 remains unchanged."

Growth was already slowing before the disasters hit, rising just 0.2% in the three months to September to an annual rate of 2.7% due to earlier weather impacts on the coal industry and the strong Australian dollar.

It was the slowest quarter seen since December 2008 - the height of the financial crisis - when Australia slumped to negative growth of 1.0%  before rebounding strongly.

Canberra had forecast annual growth of 3.25% for 2011 before the floods, cyclone and savage wildfires that have razed 68 homes in Perth, Australia's fourth-largest city.

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