18 January 2011 – Australia’s GDP may fall and vegetable prices will soar, but some industries are poised to benefit from the flood disaster in Queensland and northern NSW, according to business information analysts IBISWorld.
IBISWorld today downgraded Australia’s GDP forecast from 2.9 per cent to 2.6 per cent but said the construction industry in particular would benefit.
“Industries set to decline rapidly are perhaps more obvious and include agriculture – especially cotton and cane growers – transport and logistics, and – to a lesser extent – mining,” IBISWorld said in a special report.
“From the second quarter of 2011, IBISWorld anticipates the floods will provide a boost to economic growth through the rebuilding of infrastructure and property including roads, railways, bridges, houses and businesses, as well as replacing household durable goods.
“On the economic downside IBISWorld expects higher food costs and accelerating wage growth to fuel inflation, as limited spare capacity in the economy means the rush to rebuild will further raise inflationary pressures and exert upwards pressure on interest rates. ”
Following are highlights of the report:
Over the next two years rebuilding will create $10 billion in added revenue for the construction industry – with analysts revising the industry’s forecast for this financial year upwards by $1.2 billion to $295 billion. Looking ahead, IBISWorld has added $4.8 billion to its forecast industry spend for 2011-12 to a total of $311 billion, with an additional $4 billion flowing into 2012-13 to reach $319 billion.
In the short term, much of construction will come to a grinding halt in Queensland and other flood-affected regions of the country with equipment bogged down and roads impassable. Expect significant lost productivity in the short term, with work currently stopped on approximately $5 billion worth of commercial projects. In the long term, the cost of replacing destroyed infrastructure – restoring power lines, rebuilding roads and bridges, and reinforcing buildings – will prompt a mini-boom once the water has subsided, particularly since state and federal governments will be willing to fund rebuilding projects as soon as possible.
The latest estimates from the Local Government Association of Queensland have suggested damage has been done to between 70,000 and 90,000 kilometres of council roads with flood damage to rail lines, public transport and water infrastructure and facilities such as swimming pools, parks and traffic lights still unknown in monetary terms.
In terms of what type of construction work will be in high demand, IBISWorld forecasts those in the demolition sector will be immediately required once the water subsides to remove existing building stock and infrastructure, followed by companies involved in reconnecting utilities such as electricity, gas and water. These are the types of projects which will get underway right and away, and work will be undertaken over the first half of 2011, while smaller scale repairs and maintenance to existing transport infrastructure is expected to be completed by the third quarter of 2011.
Total new construction of housing is project to be around 15,000 units – worth $4 billion over two years – the boost to Australia’s total housing construction sector will be around 5 per cent, while $1 to $2 billion in additional spending will go to commercial and institutional premises over the next 24 months.
Tragically for the many farmers who have managed to survive the crippling drought of the past decade, newly planted crops have been swiftly washed away. Those expected to be hardest hit are vegetable and fruit growers, cotton, sugar, grain and livestock farmers – with total forecast agriculture losses expected to be $1.6 billion. Consumers will also be hit hard with the price of numerous staple vegetables tipped to soar by more than 200 per cent.
Vegetable crops that have been wiped out or downgraded – with significant price rises predicted – include: pumpkin: tomato: capsicum: celery: avocado: lettuce: zucchini: broccoli and certain types of potatoes, and there is a real risk farmers won’t be able to get the autumn crop underway at all. Overall, the vegetable growing industry will lose 8 per cent this financial year and a further 2 per cent in 2011-12.
The price of mangoes, bananas, melons, tropical fruits, grapes and seedless watermelon will also rise significantly with affected fruit growers suffering 12 per cent losses this financial year with an additional 1 per cent loss in 2011-12.
Around 500,000 bales of cotton will be lost with a possible value of $257 million, representing a 17 per cent loss for 2010-11, and a further 10 per cent loss next year, while the bulk of Queensland’s grain crop will be either lost or severely downgraded – with 5 per cent revenue loss this year followed by 1 per cent in 2011-12.
Sugar will be one of the worst hit industries with much of this year’s crop lost and a good portion of next year’s also gone, since the rain has made harvesting impossible and huge plantations of sugarcane remain underwater. IBISWorld predicts sugar cane growers will lose 27 per cent this year with potential further losses into 2011-2012.
As for livestock, the immediate impact will be mixed, with a significant number of animals removed from flooded regions in time, however the industry now faces the problem of transporting animals to slaughterhouses on impassable roads.
While tourism is expected to experience a drop in the short term as people cancel and change holiday plans to avoid those areas devastated by the floods, the sector will pick back up in 2011-12 as the memories of the area as a disaster zone begin to fade in the minds of tourists.
Transport & Logistics
With roads blocked by debris, overpasses ripped from their supports, and railways at a standstill, supply routes across much of Queensland will be closed for many months to come. Not only will those communities in desperate need of supplies be left wanting, significant losses will also be suffered by transport and logistics companies that usually service our third largest state.
Overall, the transport sector is likely to lose $467.4 million over the month of January due to the floods, and this figure could more than double depending upon the full extent of the damage – and how long it takes to get back to normal production levels.
While it is currently unclear how much damage has been caused to rail tracks and roads in Queensland, IBISWorld projects the repair bill could exceed $1 billion. Currently, more than 100 ships parked off the Queensland coast are waiting to be loaded and the expected turnaround time is 22 days – a delay which will cost shipping operators more than $10,000 per ship per day. The excess supply of ships has seen the global charter rates for ships fall to the lowest level since February 2009, in the height of the global financial crisis. Back on land, blocked highways and lower production levels will hit the trucking industry hard with losses of $213.6 million anticipated as a direct result.
While sympathy is rarely felt for insurers facing losses as the result of a natural disaster – especially as many of those suffering the most were unable to get insurance in the first place – losses by organisations including Suncorp and IAG may well end up hitting our collective back pockets.
In total, general insurers are expected to pay out half a billion dollars in claims related to the Queensland floods, with the rest covered by major global reinsurers such as Lloyds of London and Swiss Re.
Suncorp has estimated its exposure to the latest flooding will be limited to between $70 and $90 million, while payouts from December’s inland flooding may reach $150 million. IAG’s exposure is tipped at between $10 and $30 million from the first round of inland flooding and while they’re yet to attach a figure to the latest disaster their exposure is limited to $150 million. As a result, general insurers may face higher reinsurance costs as a result of their bloated claims this year – cutting into their bottom lines and potentially exposing the rest of us to higher premiums in the future.
Queensland’s mining sector will also be affected by the flooding, with forecasts that the total monetary impact on the local mining industry will be $2.5 billion during 2010/11 comprising $2 billion in lost coal shipments and $0.5 billion for mining contractors. While the lost coal production is unlikely to be recouped in coming months, the miners’ losses will be partially offset by rising spot prices for coal which will result in higher second quarter coal contract prices.
The forecast rise in coking coal prices to $350-400 per tonne should offset some of the losses once shipments resume. Others affected will include mining services contractors such as Leighton and Downer EDI, as well as the coal seam gas drilling sector.