Why Cyclone Debbie's impact may not be as bad as you think

Photo by Kevin Frayer/Getty Images

The effect of Cyclone Debbie on Australia’s GDP figures for the June quarter is unlikely to be as bad as first feared.

A research note from Commonwealth Bank’s Kristina Clifton highlights the fact that damage was mainly focused on transport infrastructure. Clifton said that the impact on actual coal mine operations would be relatively limited.

The net effect is that while coal export volumes are expected to decrease, the fall will be offset by a similarly sized contribution towards GDP from higher inventories.

Clifton said that the impact of the cyclone would largely be limited to Q2 GDP figures, because all rail lines were repaired and operating at full capacity by the end of May.

“Three of the four main rail networks were back up and running by mid-April, albeit at reduced capacity. The fourth rail network, Goonyella, was up and running at reduced capacity on 26 April,” Clifton said.

Clifton said that the cyclone, which landed on March 28, hit the Bowen Basin region of Queensland which accounts for almost all of the state’s coal production.

With 55% of Australia’s coal exports, Queensland is Australia’s largest coal exporter. In turn, coal accounts for around 12% of Australia’s total exports.

In the state budget, the Queensland Government estimated that coal exports would would fall by around 10 million tonnes in the June quarter as a result of the cyclone’s impact. That amounts to around 10% of Australia’s total coal exports.

“This means that export volumes in Q2 2017, which feed into the GDP numbers, will be around 1.2% lower than they would have been otherwise. And a subtraction from Q2 GDP growth of roughly 0.25 percentage points,” Clifton said.

Commonwealth Bank of Australia

Despite the fall in exports, inventories are likely to rise because the impact on actual coal production was not commensurate with the damage to railways.

Clifton said that while flooding in the mines caused production to be affected for a period of two weeks, parts of the mines were still operational.

“We have looked at the communications from the major coal miners in the region. Overall they have assessed the disruption to production from the cyclone as minimal with stoppages limited to a few days,” Clifton said.

Based on the analysis, Clifton estimates that while two weeks amounts to around 10 million tonnes of lost production, the actual figure was more like 5 million tonnes.

The resulting lift in inventories is therefore likely to off-set the negative effect of lower exports, resulting in a net drag on GDP of only 13 basis points.

Clifton also compared the estimated impact of Cyclone Debbie on GDP to that of Cyclone Yasi 6 years earlier, which hit in February 2011 following heavy rain at the end of 2010:

Commonwealth Bank of Australia

In that case, flooding damage limited mining production more severely. The fall in Queensland coal production reached 40 million tonnes in the following months, which was partly offset by an increase in NSW coal production of around 18 million tonnes.

Combined with damage to transport infrastructure, Clifton’s team estimated that Cyclone Yasi’s effect on GDP was more severe, contributing a net drag of 0.5% on GDP in 2011.

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