The cost to the Australian economy of this summer’s devastating bushfire season has already likely topped $2 billion – and is still climbing.
Economists are tipping the Reserve Bank will deliver another interest rate cut next month, amid fears the fires will prompt already cautious consumers to spend even less.
But the Morrison government’s budget surplus looks safe, for now, they say.
The head of economic analysis at SGS Economics and Planning, Terry Rawnsley, estimates the direct costs to fire-affected regions from lost tourism, agricultural and retail income already lies between $1.1 billion to $1.9 billion this financial year.
In addition, the smoke haze regularly shrouding major cities was likely to have reduced national economic output by a further $500 million since the start of summer, Mr Rawnsley estimated, including through lost productivity, spending and ill health.
“You’re getting up to a $1.5 to $2.5 billion impact on the economy,” he said.
The figures are based on previous modelling of the Tathra fires in 2018 and the link between the size of insurable losses and economic output. As insurable losses rise – $375 million on the last estimate by the Insurance Council of Australia – so, too, will economic costs.
Mr Rawnsley estimated a hit to national gross domestic product of 0.15 per cent this financial year, mostly in the March quarter. He warned many affected communities may never fully recover.
“For those local communities, they’re looking at a 25 to 50 per cent reduction to their economy. Whether they can bounce back again from that is the question for the long term,” he said.
“A lot of those areas are holiday towns and rely on summer-period income to get them through the year. If the town’s been burnt out, people may decide to leave for good. Some of those areas are pretty marginal to start with. If your population drifts away, you don’t really get that benefit from rebuilding stimulus.”
AMP Capital chief economist Shane Oliver estimates a reduction of between 0.25 and 1 per cent in the level of national economic output as a result of the fires, mostly in the March quarter.
“A big chunk of Australia is on fire, but the economic impact is not quite as big as it would appear,” he said.
NSW’s South Coast is home to about 1 per cent of the Australian population, and another 1 per cent live in the fire-affected regions of Gippsland and northern NSW, Mr Oliver explained. “I was assuming economic activity in those areas was 10 per cent less, so that gives you a 0.2 per cent deduction.”
Broader damage to Australia’s image as “a safe country to travel to” might knock another 0.1 per cent off output, while a reduction in consumer spending could knock off another 0.2 per cent.
“Australians are already feeling pretty uncertain about things, given low wages growth,” Mr Oliver said. “They may be even more reluctant to spend now, given that others are suffering.”
Mr Oliver said the bushfires would put extra pressure on the Reserve Bank to ease interest rates and the government to unleash stimulus.
Economist Saul Eslake said the economic hit from the fires was not sufficient – yet – to jeopardise the Morrison government’s return to budget surplus this financial year.
“The overall numbers are still relatively small compared with the overall population, stock of housing and relative flow of income. A bit like the drought, catastrophic as it is for the communities and the people who are affected by it, it has a very small impact on measured GDP.”
Insurance payouts and government assistance would act as a “mini stimulus”, kick-starting the building of new homes and infrastructure, Mr Eslake said.
“In a way that will seem perverse and puzzling to many people, the rebuilding will contribute towards GDP as well as presumably create employment.”
Chief economist at PWC Jeremy Thorpe agreed there would be a boost to growth and jobs as rebuilding got under way.
“It’s a perverse outcome. We’re going to spend money to rebuild, which is a positive, but we’re only getting back to some version of the previous quality of life. It’s an example of where GDP is not a good measure of welfare. It’s a measure of activity.”
IBISWorld senior industry analyst Tom Youl predicted the fires would negatively impact the insurance, agriculture and tourism sectors. But jobs and growth in the healthcare sector might actually expand, as thousands of traumatised people sought physical and mental health care.
“Those people will need support over many years,” Mr Youl said. “The cost of it really does go on for years, and that makes it really difficult to quantify.”
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