The devastation of the Queensland floods has quashed earlier predictions of a minimal economic impact, with economists now fearing the floods could cut Australia’s GDP by as much as 0.3%.

 

The cities of Brisbane and Ipswich have joined the long list of towns already affected by the floods, with the Brisbane River bursting its banks and flooding hundreds of homes.

 

Businesses across the State have shut their doors, with staff ordered to stay at home for the next few days as flood levels peak.

 

Reserve Bank board member Warwick McKibbin says Queensland’s economy could be hit by a GDP loss of 1%, costing it a total of $13 billion.

 

According to Westpac, the overall impact depends on a range of factors including the stage of the growing season key farmers were in when the floods hit, the extent of infrastructure damage, and the duration of disruptions to business activity.

 

“It’s likely to be several weeks at least before even some of the most basic parameters are known,” Westpac says.

 

“Overall, we see a ballpark estimate of a 0.3% hit to annual GDP as a reasonable assumption, with inflation being boosted by 0.1% to 0.2% in Q1.”

 

“The timing of the hit and recovery means we could see Q1 GDP drop by as much as 1% before the recovery boost growth in the following quarters.”

 

Prime Minister Julia Gillard has acknowledged the financial aid required as a result of the floods poses a threat to the government’s pledge to return to surplus by 2012-13.

 

Gillard says the government will continue to give financial assistance to small business owners who have been impacted by the crisis.

 

In addition to grants and concessional interest rate loans, flood-affected businesses have been given a reprieve by the Australian Tax Office.

 

Businesses will have their lodgement and payment dates for December activity statements deferred to February 21, a month later than initially required.

 

The ATO says it can help flood victims by fast-tracking funds, giving people extra time to pay debts without interest charges, and helping reconstruct tax records where documents have been destroyed.

 

Meanwhile, insurers have already been hit with hundreds of insurance claims, with analysts estimating the floods could cost the insurance industry more than $1 billion.