As much as 1.5% will be wiped off GDP growth in the March quarter due to the floods in Queensland and Victoria, according to a special NAB business survey, with national business revenue falling 5.1% in January and an estimated 4.4 working days lost.
And while NAB head of Australian economics and commodities Rob Brooker says the economy will keep moving, it may not be out of the question that we see a quarter of negative GDP growth in the three months to March.
“We’re still thinking a positive number, but the floods will certainly shave quite a lot off. We’re looking at a figure of 0.2% or 0.1%,” he says.
“These figures are notoriously difficult to predict… but if you saw a negative number, I don’t think you would be surprised.”
Treasurer Wayne Swan also said yesterday that a quarter of negative growth is not out of the question.
The survey shows that revenue for large- to medium-sized firms fell by 5.1% during January, and capacity utilisation fell by 5.9%. But in Queensland alone, the results are much worse. Business revenue fell by 9.8% and capacity utilisation dropped by 13.8%.
In Queensland, 25% of businesses said they experienced a major disruption or full closure, and in Victoria 72% of respondents said they had reported at least some disruption.
Over 20% of businesses say they will need more than one month to recover from the floods, and most of those will rely on cashflow and savings. Over 33% say they were not covered by insurance, and that number rises to 41% in Queensland.
About 22% of companies say they will operate below pre-flood levels for another month or longer.
“It’s a pretty substantial hit in January,” Brooker says. “Conditions have been hit hard, and the industries that have been hit the most were the mining and construction sectors… they were hit extremely hard.”
The effects of the floods have been felt in other states. In New South Wales, capacity utilisation was down about 4.8%, and revenue was down by 4.1% in Western Australia.
“The construction sector has sustained heavy losses nationally as a result of the floods and wet weather. There have also been significant closures in the retail sector,” the survey said.
Many of the businesses said they would face restraints on recovery. About 32% said customer demand and orders would hold them back. About 39% of businesses said this would be a problem in Victoria, and 38% said that was the case in Queensland; 19% of businesses in South Australia and 20% in Western Australia also said this was the case.
However, Brooker says the impact of the floods is largely concentrated in the month of January and that long-term recovery efforts will help the construction and engineering sectors.
“It is a substantial hit in January. But, I think the survey shows the floods have a temporary effect. Business conditions have been hit but I believe confidence has improved,” he says.
The survey shows businesses are recovering rather well. For 54% of respondents, business had returned to pre-flood levels and that 22% said it would take a month – only 1% said they would never recover.
“Our last confidence survey was taken in January when the flood alert was on for Brisbane. I think conditions have improved quite a bit since then, and the flood waters have receded.”
“Certainly the RBA has a profile for GDP and that is positive. And you’re going to have a lot of rebuilding operations that will resume… a big reconstruction effort may last 18 months and I think that’s going to bring GDP up faster than we were expecting.”
Meanwhile, the new Dun & Bradstreet Business Expectations survey reveals business confidence has dropped slightly from seven-year highs due to pressure on wages – employment expectations are not at seven-year highs.
However, executives say the outlook for finances is weaker. The profits index has fallen seven points to 23, although that figure is higher than at any point during the five years to the September quarter 2010, and the inventories index is down three points to seven, although it is still relatively high.
The selling prices index is down one point to 17, keeping “relatively steady”, the report said, although sales expectations are down by 16 points to 15, the lowest of the last seven quarters.
Interest rates are no longer a concern for many businesses, with only 27% ranking them as the primary influence on their business – this represents a decline of 13%.
However, 27% say wages growth will be the primary influence, up 2% from last month. The manufacturers’ employment index also rose, with 9% of all companies taking on staff, indicating employment growth is on the horizon.
This is directly affecting expectations for profit, D&B says, and chief executive Christine Christian says the danger of wages growth means there will be a looming threat of inflation.
“However, the increasing demand for labour and the expected impact on wages does point to some capacity constraints and if this continues it is likely to eventually show up in inflation,” Christian says.
Christian warns that businesses need to make sure that they limit the impact wages will have on their bottom line, and has urged the Government to ensure the supply of skilled labour will keep in line with demand.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
