Disasters' dramatic hit on Australian economy

Natural disasters probably cut more than 1 percentage point from Australia's economic growth in the first quarter, Treasurer Wayne Swan said three days before a government report on gross domestic product.

The June 1 report from the Bureau of Statistics likely will show a "dramatic hit" from floods and a cyclone in Queensland, and an earthquake and tsunami on March 11 in Japan, Swan said yesterday in a weekly economic note. Japan is Australia's second-biggest trading partner after China.

Swan's latest estimate was higher than one he made in April that put damage to GDP in the first quarter at 0.75 percentage point.

The median estimate in a Bloomberg News survey of 23 economists is for a 0.3 per cent first-quarter contraction from the final three months of 2010.

The total economic cost of the disasters is likely to be about A$9 billion ($11.8 billion), with more than half the estimated A$6 billion impact to coal production showing up in the March quarter, Swan said.

Australia's central bank has held the nation's benchmark interest rate unchanged at 4.75 per cent since November to allow Queensland, which produces 80 per cent of the coking coal exported from the country, to recover from the flooding.

"The size of that loss isn't surprising when you consider that 85 per cent of Queensland's 57 coal mines suffered production losses in the early part of the year," Swan said.

The Reserve Bank's next meeting on interest rates is scheduled for June 7.

This month it said GDP "is likely to have declined in the March quarter".

- BLOOMBERG