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Cyclone Debbie just a squall for Australia's fair weather economy
March 31, 2017 / 5:47 AM / 8 months ago

Cyclone Debbie just a squall for Australia's fair weather economy

* Q1 GDP to be hit by 0.4 pct worst case scenario-economists

* Coal, construction agriculture big losers from Debbie

* Tourism seen being hit too after damage to resorts

* Repair, rebuilding to boost growth in coming months

By Swati Pandey

SYDNEY, March 31 (Reuters) - A devastating cyclone that pummelled Australia’s northeast this week is likely to have a dampening effect on the country’s economy with coal production, exports and construction activity taking a hit.

While a more concrete picture of the damage from Cyclone Debbie will be clearer in coming weeks, economists say Australia’s first quarter gross domestic output could be lower by 0.4 percent, in the worst-case scenario.

That makes it more likely that the country’s A$1.7 trillion ($1.3 trillion) economy will slow to under 2 percent in the first quarter from 2.4 percent the previous quarter.

Cyclone Debbie hit as a category four storm on Tuesday in the north of tropical Queensland state, which generates almost 20 percent of Australia’s GDP at A$316 billion.

It was downgraded to a tropical low depression but on Thursday was driving squalls with torrential rain across a 1,200-km (745-mile) stretch of Australia’s east coast, swelling rivers and causing major flooding.

“So Debbie’s economic legacy could be fairly large,” said Paul Dales, chief economist at Capital Economics.

“The big losers are those construction companies that couldn’t get on site, the miners that shut down operations and the manufacturers whose factories were empty.”

In the Bowen Basin, the world’s single largest source of coal used to make steel, Glencore said its mines were not damaged by the storm but restarting production depended on railways reopening. BHP, was still assessing the extent of any disruption to shipments.

Queensland’s top insurers, Suncorp Group Ltd and RACQ, said it was too early to put a dollar figure on the damage.

Severe damage has been inflicted on vegetable and fruit crops in the Bowen and Mackay areas, with potential harm to this year’s sugar crop which was due to be harvested in about six weeks’ time.

The wide region impacted by the cyclone contributes over A$1 billion of agricultural production annually, providing about 95 percent of Australia’s winter supply of tomatoes and capsicums, said John Peters, senior economist at Commonwealth Bank.

Tourism is another area that has taken a big hit from Debbie, with damage to popular resorts particularly in Whitsundays island which alone accounts for about 10 percent of Australia’s tourism earnings.

While a lower GDP will not be welcomed by the Reserve Bank of Australia, it is likely to look through the volatility in the data when setting policy rates. It holds its next policy meeting on April 4.

The deleterious impact of the cyclone will likely be short-term with rebuilding and repair activity expected to prop up economic growth in coming months, economists said.

“The State, Federal and local governments will rebuild damaged rail, roads, buildings and bridges,” Peters said.

“The private sector will also rebuild the port facilities, marinas, and tourism areas. So the lift in investment could be a substantial positive influences on the June, September and December GDP calculations.” ($1 = 1.3082 Australian dollars) (Reporting by Swati Pandey; Editing by Michael Perry)

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