Despite near-term pain, flood repairs are set to deliver stronger economic growth in the second half. This clearly shifts market risks in the direction of higher interest rates.

The tragic Australian floods will significantly distort Australia’s growth profile over 2011 and 2012. Broadly speaking we will initially see a substantial fall in economic activity as businesses, farms and mines are disrupted in their capacity to provide services and maintain production levels.

This effect will be somewhat mitigated given that the peak disruption from the floods coincides with the Australian holiday season when many businesses, factories and social service providers such as schools are closed down.


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