“A big chunk of Australia is on fire, but the economic impact is not quite as big as it would appear.” That was AMP Capital chief economist Shane Oliver, speaking as the summer’s bushfire season dragged on and the bill kept climbing.
By the Sydney Morning Herald’s count in early January 2020, the cost to the national economy had likely topped $2 billion. Economists said it was still rising.
Where the money goes
Terry Rawnsley, head of economic analysis at SGS Economics and Planning, put the direct hit to fire-affected regions at between $1.1 billion and $1.9 billion for this financial year. That covers lost tourism, farming and retail income. He added about $500 million for the smoke haze that kept settling over major cities, through lost productivity, reduced spending and ill health. “You’re getting up to a $1.5 to $2.5 billion impact on the economy,” he said.
His figures draw on earlier modelling of the 2018 Tathra fires and on the link between insured losses and economic output. The Insurance Council of Australia’s latest estimate of insurable losses stood at $375 million, and Rawnsley said economic costs would grow as that number did. He estimated a 0.15 per cent hit to national gross domestic product this financial year, mostly in the March quarter.
Oliver was more cautious about the national picture. His estimate was a cut of between 0.25 and 1 per cent in output, again mostly in the March quarter. About 1 per cent of Australians live on NSW’s South Coast and another 1 per cent in fire-hit parts of Gippsland and northern NSW, he said, so assuming activity there fell 10 per cent gives a 0.2 per cent deduction. Damage to Australia’s image as a safe place to visit might shave off another 0.1 per cent, and weaker consumer spending another 0.2 per cent.
Towns that may not come back
The local picture is harsher. Rawnsley said affected communities face “a 25 to 50 per cent reduction to their economy.” Many are holiday towns that live off summer income. “If the town’s been burnt out, people may decide to leave for good,” he said. “If your population drifts away, you don’t really get that benefit from rebuilding stimulus.”
Economists expected the Reserve Bank to cut interest rates again the following month, worried that cautious shoppers would spend even less. Oliver said the fires would add pressure on the bank and on the government to stimulate the economy. “They may be even more reluctant to spend now, given that others are suffering,” he said of households squeezed by low wages growth.
The Morrison government’s budget surplus looked safe for now. Economist Saul Eslake said the overall numbers were small against the population, housing stock and flow of income. Rebuilding funded by insurance payouts and government help would act as a “mini stimulus” and add to GDP, he said, an outcome he called one that “will seem perverse and puzzling to many people.” Jeremy Thorpe, chief economist at PWC, agreed that jobs and growth would get a lift. “It’s an example of where GDP is not a good measure of welfare. It’s a measure of activity.”
IBISWorld analyst Tom Youl expected insurance, agriculture and tourism to suffer, while healthcare could grow as thousands of traumatised people sought care. “The cost of it really does go on for years,” he said.
A later study put a firmer number on the damage to farms. A report by WWF-Australia and University of Sydney researchers, published in December 2021, estimated that the 2019-20 fires cost Australian agriculture between $4 billion and $5 billion, or between 6 and 8 percent of agricultural GDP. More than 100,000 livestock died, accounting for about $2 billion of that loss.
Sources
- Black Summer bushfire season cost farmers up to $5 billion
- Economic cost of bushfires estimated at $2 billion and rising
Sources
- Black Summer bushfire season cost farmers up to $5 billion
- Australia fires: Bushfire economic cost estimated at $2 billion and…
