As the disaster-ravaged state of Queensland dusts itself off from Cyclone Yasi, economists are warning that Australia’s latest tussle with nature could wipe more than $2 billion off the country’s gross domestic product. Food prices and insurance premiums are expected to rise, while a vital tourism and agricultural area has been decimated.
Still, considering Yasi was a category five cyclone only a little smaller than the United States, analysts are saying Australia should consider itself lucky.
Yasi flattened properties, overturned luxury yachts, and ripped up plantations along a 125-mile-stretch of Queensland’s picturesque coast when it came ashore with winds of more than 125 mph late Wednesday night. On Thursday some 130,000 properties remained without electricity as Australia deployed 4,000 soldiers to help with the recovery effort. At least one person is known to have died in the cyclone, asphyxiated by fumes from a generator operating in a small room.
“We were extremely lucky from an economic perspective," continues Mr. Mathews. "We were lucky because of where Yasi crossed the Australian coast, which avoided major population centers, and we were lucky because it avoided key mining infrastructure and assets. But certainly the agricultural industry will be impacted.”
Agricultural losses from Yasi are already being put at $1 billion, while $300 million in coal exports have been lost because of suspended business operations and port closures. Queensland’s latest natural disaster bill comes as the state recovers from January floods that covered an area larger than Texas and California combined and caused $5.6 billion in damage.
Toll on sugar, banana crops
Damage to Queensland’s sugarcane crop is expected to weigh in at $500 million, representing about 30 percent of Australia’s harvest. Australia is the world’s third-largest sugar exporter. World sugar prices rose to a 37-year-high after news of Yasi broke. They dropped significantly Thursday, but were still trading some three times above the long-term average.
Likewise, the price of bananas is expected to soar by up to 500 per cent after three quarters of the nation’s crop was wiped out. Queensland’s banana industry, worth some $400 million, was only just getting back on its feet following Cyclone Larry in 2006 which decimated 90 percent of the nation’s crop.
In the wake of Yasi, Australians have again been told to prepare to pay more at supermarket checkouts. Food prices have already risen by 12 percent following widespread flooding which hit major fruit and vegetable growing areas in Queensland and Victoria.
“A continuation and a probable increase in domestic food-price inflation will arise because of Yasi,” says Mathews of the Commonwealth Bank of Australia.
Oprah plugs for Queensland
Queensland’s prized tourism industry is also reeling and the state’s peak tourism marketing body will delay the launch of a $10 million post-floods advertising campaign which had aimed to lure visitors back to the “sunshine state.” Queensland had been expecting to cash in from global coverage generated by Oprah Winfrey’s recent visit to Australia and subsequent four-part television special. The payoff from Ms. Winfrey’s “ultimate Australian adventure” is now in doubt, as images of surging floodwaters, howling winds, and battered homes replace shots of golden beaches and tropical rainforests.
Prime Minister Julia Gillard has pledged to rebuild communities hit by Yasi, warning the country to prepare for further budget cuts to cover the expense. In the wake of the floods, Ms. Gillard proposed a one-off tax to raise $1.8 billion to help cover rebuilding costs. She has ruled out introducing another tax for Yasi.
The string of natural disasters to hit Australia over the past two years is also likely to see global reinsurers up their risk rating of the country. This, in turn, will increase the premiums they charge local underwriters – a cost ultimately borne by consumers.
“There might be a view from the global community that there has been sufficient activity here to make some changes to [risk] ratings,” Mark Senkevics, head of Australia and New Zealand for global reinsurer Swiss Re, said on Thursday. “It is likely, in my view, that will happen.”
Climate change to blame?
The move to reconsider Australia’s risk profile comes as the government’s top climate adviser issued a stark warning to the nation that the frequency of extreme weather events would only intensify.
“You ain’t seen nothing yet,” Ross Garnaut, the federal government's climate change adviser, said Thursday at the launch of a report into the impact of climate change on Australia.
The world has warmed by about 1 degree since industrialization, said the economics professor at Australian National University. The intensification of extreme weather events since then, Mr. Garnaut said, was only a fraction of what could be expected under further temperature rises.
“The science says that without mitigation – and with the sorts of emissions growth that my analysis shows will follow the industrialization of China, of India, of Indonesia and the acceleration of economic growth in Africa – then that first degree is just the beginning,” he said.