Expect subdued demand over the next few months, as rebuilding will be the initial focus
Unprecedented floods in Australia have taken a huge toll on residents in affected areas, and it will likely take months The floods currently hitting Queensland and New South Wales (NSW) will have wide-ranging consequences across the economy. Most significantly, transportation along the east coast will be severely disrupted. Firms should evaluate the risks posed to their supply chains and redirect them away from affected areas, if possible, as damage to transport infrastructure could take weeks or even months to reverse.
Food price inflation in Australia will increase, as the floods have damaged farms, lowering food supplies and agricultural output. Dairy and livestock production has been hit hardest due to the high concentration of dairy farms and cattle ranches in Queensland and NSW. This will also impact markets beyond Australia, as China and several Southeast Asian countries rely on dairy and meat imports from Australia.
Domestic demand in Sydney, Brisbane, and other affected regions is expected to fall, with residents and businesses likely to take months to recover from the impact of the floods. Firms should expect both discretionary consumer spending and business demand to be subdued over the coming months, with recovery of homes and infrastructure being the primary short-term priority.
Overview
Over the last ten days, Australia has faced its worst flood in decades, with heavy rainfall pouring across Queensland and NSW. Meteorologists describe the event as an “atmospheric river,” a long and narrow region of rainfall 1–3 kilometers above sea level that is akin to a river falling from the sky. Heavy rainfall caused several dams in the region to overflow and waters to make their way through towns and cities. The areas worst affected by the floods are southeastern Queensland and eastern NSW. Several cities and towns have been devastated by the heavy rainfall and flash flooding, including areas of Brisbane and Sydney. Heavy rainfall persists in NSW, with flood warnings and evacuation orders in place across the northeast regions of the state. While the situation remains dynamic and highly volatile, experts expect heavy rains to cease by this weekend.
Our View
Unprecedented floods in Australia have taken a huge toll on residents in affected areas, and it will likely take months for markets in those regions to recover from the shock. While authorities have assured residents that they will be given ample support in the form of relief payments, the damage to property, roads, and infrastructure cannot be reversed overnight. Middle- to low-income households and SMEs, in particular, will have a long and protracted recovery because of these groups’ low adoption of flood insurance. However, firms should note that the economic fallout from the current floods will be concentrated in Queensland and NSW, with neighboring regions, such as Victoria and Canberra, emerging relatively unscathed.
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