After New Zealand’s earthquake and Australia’s floods and cyclones — not to mention raging fires that preceded — anyone would think someone up there had it in for the Antipodes.

Despite the ravages of weather, however, Australia seems to be living up to its “Lucky Country‘ tag. Amid fears about the economic fallout from the weather disasters of December and January, the government on Wednesday reported 0.7 per cent quarterly growth. Softer than hoped for but not nearly as bad as some feared.

The result prompted Treasurer Wayne Swan to estimate that flood damage to coal and farm output cut about 0.4 percentage points off quarterly economic growth. He also warned of more impact in the March quarter, knocking a possible full percentage point off GDP.

Yet, there is good news to off-set the bad – with the suggestion that strong growth will follow the March quarter. On the previous day the government’s commodities forecaster gave a surprisingly upbeat outlook for continuing high commodities prices.

As Bloomberg reports on Wednesday:

The report validates Reserve Bank of Australia Governor Glenn Stevens’s view that natural disasters in the state of Queensland this quarter will be only a temporary drag on growth. The nation is undergoing a boom in resource investment as mining and energy firms boost output to meet demand from China and India.

As for commodities, Australia’s natural resources forecaster, Abares, predicted on Tuesday that contract prices for iron ore, thermal coal and coking coal – the country’s three most important export commodities and the ones most in demand in Asian markets – would rise to record or near-record levels this year.

In fact, said Abares in its quarterly report, the price rises for the bulk commodities will help deliver a 24 per cent rise in Australia’s export income in the 12 months to June 2010, followed by a 14 per cent increase the next year.

The upbeat assessment, as CNBC notes, is “at odds with concerns in markets as production grows, China tries to cool its economy and prices lose some momentum”.

But perceptions are often out of step with reality and for now, iron ore, coking coal, copper and gold close to or beyond record highs, while wheat and crude oil hover around two-year highs. CNBC adds:

Australia is well positioned to call trends in commodities markets: it is the world’s third-largest wheat exporter and a top-two exporter of iron ore and coal. Its small population means just about everything it mines or grows is shipped abroad.

The bullish view on commodities prices followed the widely expected decision by the Reserve Bank of Australia on Tuesday to hold its benchmark interest rate at 4.75 per cent, after seven rate rises in just over a year from October 2009.

It also fits with the central bank’s new focus on economic growth and recovery from the ravages of floods and cyclones, rather than on containing prices. While it warned last month of probable commodity price downturns, the RBA noted on Tuesday that the stronger currency and an earlier decline in wage growth were helping to contain inflation, which was likely to stay within its target range of 2-3 per cent over the next year.

In addition, a one-off ‘flood tax’ announced by the government last month will kick in to cover nearly $6bn in estimated clean-up costs – while reconstruction will give its own boost to the economy.

Like the RBA, some analysts, including those at ANZ and Rabobank, have also expressed doubts about the resilience of the commodities price boom. For now, though, opinion seems to be tipping towards the bullish view.

Not least from investor Jim Rogers, who told CNBC on Monday that the bull market in commodities is “still in place” and has a “long way to go.” “The best sector that I know in the world economy is going to continue to be commodities”, he gushed.

Rogers was speaking as he launched the Rogers Global Resources Equity Index, which tracks 200 global resource companies.

Fancy that.

Related links:
Mining to warm up the economy – The Australian
Australia’s commodity boom intact – CNBC
New Zealand, the rebuilding – Lex
RBA’s ’shocker’ Down Under – FT Alphaville

The upbeat assessment is at odds with concerns in markets as production grows, China tries to cool its economy and prices lose some momentum — although iron ore, coking coal, copper and gold remain around all-time highs, and wheat and crude oil at around two-year highs.

Winfried Rothermel / AP Wheat Fields

Australia is well positioned to call trends in commodities markets: it is the world’s third-largest wheat exporter and a top-two exporter of iron ore and coal. Its small population means just about everything it mines or grows is shipped abroad.

This entry was posted by Gwen Robinson on Wednesday, March 2nd, 2011 at 10:14 and is filed under Capital markets, Commodities. Tagged with abares, australia, coal, commodities, gdp, iron ore, rba, steel. Edit this entry.