Costs from Queensland floods rise, but economists say disaster will not impact interest rates

The mining, agribusiness, insurance and consumer staples sectors have started counting the costs of the Queensland flood disaster, with the Queensland Premier Anna Bligh estimating the final toll could be as high as $5 billion.

This morning beverages giant Coca-Cola Amatil became the latest big-name company to warn that its earnings had been affected by the floods. CCA cited “the impact of the colder and wetter weather across the Eastern seaboard, in particular the flooding in Queensland” for shaving a few percentage points of its profit growth outlook.

After initially predicting earnings before interest and tax could increased by 7-8% in the six months to December 31, 2010, the company now expects EBIT will rise by 5-5.5%.

“Trading conditions throughout the summer period have been challenging, with unseasonal weather and lower consumer demand affecting CCA’s major trading zones across Queensland, New South Wales and Victoria,” managing director Terry Davis said in a statement to the ASX today.

CCA’s warning comes a day after Australian Agricultural Company and Macarthur Coal both warned the floods would weigh on earnings.

AACo said it will lose more than $9 million as a result of lost crops and infrastructure, while fellow agribusiness group PrimeAg Australia expects the disaster to shave up to $7 million off its earnings.

Investors are also nervously waiting to discover how much the flood disaster will cost the insurance sector. An early estimate from brokers JP Morgan put the insurance bill at $1 billion, with Queensland-based insurer Suncorp widely expected to be hit hardest.

Separate research from Royal Bank of Scotland suggests Suncorp’s share of losses from the flood could be as high as $100 million, trimming its 2011 earnings by up to 10%.

The insurers are yet to make official statements on the disasters.

While there have been fears that inflation caused by increases in food prices in the wake of the flood could put upwards pressure on interest rates, economists expect the RBA will ignore this when it next meets in February.

HSBC’s chief economist for Australia and New Zealand, Paul Bloxham, says that while the floods could shave up to 0.25 percentage points off GDP growth across 2011, the impact on GDP could actually be positive as rebuilding efforts commence and the Queensland economy is stimulated.

And while Bloxham concedes there is a risk that food prices could have some impact on inflation, the RBA will really only be concerned if higher food prices don’t ease once the crisis is passed.

“We continue to expect that the next increase in interest rates will be in the second quarter of this year, with rates increasing to 5.75% by early 2012.”

“It is worth noting that the floods, and the uncertainty they create for the economic outlook, make us even more confident that a February move is off the table.”


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