Statement on Monetary Policy – May 2025Box B: The Impact of the Recent Floods on the Australian Economy

Natural disasters such as floods and cyclones are a negative supply shock to the Australian economy as production is disrupted, and public infrastructure, homes, cars and business assets are damaged. Natural disasters can also affect the path of demand over time; typically spending is delayed but then increases as disruptions ease and the replacement of damaged assets gets under way.

Recent flooding and Cyclone Alfred likely lowered GDP growth in the March quarter.

The RBA’s estimate is that the natural disasters subtracted around 0.1–0.2 percentage points from GDP growth in the March quarter. This estimate is informed by timely card spending data showing that household spending declined sharply in the affected regions during Cyclone Alfred (Graph B.1). Compared with the 2022 Queensland and northern NSW floods, there was more stockpiling of supplies ahead of the cyclone, spending declined more sharply as there were more widespread store closures during the cyclone, and power outages disrupted spending afterwards. However, there was a faster return to normal consumption patterns than in 2022, and there was less damage to homes, businesses and infrastructure. Construction activity in southeast Queensland was halted for several days around the time of the cyclone. However, builders generally plan for wet weather in the March quarter and the construction industry had the capacity to begin repairs more quickly than in 2022. Flooding in parts of northern, central and western Queensland disrupted economic activity in some areas for an extended period. Exports were also a little lower, as floods affected some coal mines and agricultural areas, and transport was disrupted.

The fall in activity associated with the disasters could be offset by recovery spending over time. After the floods and cyclone, there was an increase in private and public spending associated with cleaning up, restocking, rebuilding and motor vehicle purchases, much of which is not captured in card spending data. Liaison with businesses suggests recovery spending commenced towards the end of the March quarter and is likely to continue into subsequent quarters, although the magnitude and timing of recovery spending is uncertain. Flooding has continued to affect activity in some areas of Queensland into the June quarter, and the recovery in some areas is likely to take some time.

The overall impact of the natural disasters on domestic prices is expected to be modest.

Replacement spending on household goods and motor vehicles is not expected to have had a significant impact on goods price inflation. There may have been some additional upward pressure on construction costs at the margin, reflecting constraints on some of the trades needed for repairs. The loss of crops had limited impact on food prices, as most of the affected produce is also grown elsewhere.