Disasters put Australia into reverse

Floods in Queensland helped drag down the Australian economy but it is expected to bounce back. Photo / APN

The Australian economy crashed to its biggest quarterly contraction in two decades in the three months to March under the weight of floods and cyclones.

The Bureau of Statistics said yesterday that national gross domestic product had fallen by 1.2 per cent, steeper even than the fall during the worst of the global financial crisis.

Heightened by the impact of Queensland's disastrous summer on miners, the bureau said the slump was the biggest since the March quarter of 1991, when the economy contracted by 1.3 per cent.

"Flooding which began in late December 2010 combined with cyclones in both Queensland and Western Australia have had a significant impact on the March quarter activity," the bureau said.

The scale of the GDP slide took most analysts by surprise, although late warning had come on Tuesday with the release of March quarter trade figures showing declines of 8.7 per cent for the three months and 3.4 per cent for the preceding year.

This was the biggest quarterly trade fall in 37 years, largely driven by a 13.6 per cent decline in non-rural commodity exports.

Floods cut exports of coal, coke and briquettes from Queensland by A$4.6 billion ($6 billion), worsened by cyclones and heavy rain in Western Australia, where foreign sales of metal ores and minerals fell by A$1.3 billion.

Earlier warning was also given in the May federal Budget, which said wild weather had cost the federal Government A$6.6 billion, slashed production by A$9 billion and, with foreign blows, cut economic growth by 0.75 per cent.

Yesterday's figures confirmed the blow.

Underlining the impact of disasters, the bureau said the biggest impact had been felt by mining, whose 6.1 per cent quarterly fall pruned 0.6 percentage points off economic growth.

The bureau said manufacturing had fallen 2.4 per cent and agriculture 8.9 per cent, both cutting GDP growth by 0.2 percentage points.

But the bureau said that despite the fall in GDP volumes there was an increase of 0.3 per cent in real gross national income, driven by an increase of 5.8 per cent in the terms of trade on the back of stronger commodity prices.

The largest positive contributor was private gross fixed capital formation, which increased by 0.7 percentage points.

And there was widespread confidence that the size of the March crash was a one-off blow for an economy with far rosier prospects ahead.

Treasury forecasts predict real GDP is expected to rise from 2.25 per cent in 2010-11 to 4 per cent next year before easing back to 3.75 per cent in 2012-13, and analysts warned against placing too much focus on a single quarter's performance.

Treasurer Wayne Swan said the Government had expected the economy to take a big hit for the quarter, but that the fundamentals remained strong and pointed to bright medium-term growth prospects.

Shadow Treasurer Joe Hockey, while attacking Labor's management and tax plans, also said there was underlying strength in the economy and that temporary factors would unwind through the balance of the year as production and exports recovered.