Members of the Sutherland Strike Force Rural Fire Service worked to contain a spot fire in New South Wales Feb. 1.
Photo: sean davey/Shutterstock/european pressphoto agencySYDNEY—Natural disasters are unpredictable events with broadly predictable results: a destruction of property and wealth, but no lasting impact on economic growth.
Australia’s wildfires, which have ravaged more than 26,000 square miles of land and killed at least 30 people, will be the latest big test of that view. At stake is the country’s 28-year run without a recession—the longest ongoing streak in the developed world.
Natural disasters inflict immediate pain on an economy because they disrupt activity, stopping consumers from going to shops and shuttering businesses for a time. Later comes a growth kick as damaged infrastructure and wrecked buildings get rebuilt. In Australia’s New South Wales state, more than 2,000 homes have been destroyed by fires that have torn through an area the size of West Virginia, mostly in the past couple of months.
Australia’s central bank believes the economy will quickly weather the impact of the wildfires. On Feb. 4, it said the blazes would exert just a temporary drag on growth, as it forecast a 2.75% expansion in gross domestic product this year.
Among economists, however, a range of views has opened up. Westpac Banking Corp. says its estimate that the bush fires will cut GDP by 0.2% percentage point appears conservative, given other forecasters are projecting a hit to growth of up to 0.5% point. The recent coronavirus outbreak poses another serious economic threat, as China is the top buyer of Australian commodities, and many mainland tourists and students travel to cities including Sydney.
Australia’s economy was already flashing warning signs before the first blazes flared, with U.S.-China trade frictions taking a toll. One survey of consumer confidence released late last year found that 40% of Australians thought 2020 would be worse than 2019, the worst reading since the early 1990s.
The country’s central bank cut interest rates three times last year, giving a boost to employment growth, but the fires’ impact could stall hiring.
"The combined impact of global trade disruptions, slow local consumption, the residential construction downturn, drought and the ongoing bush-fire crisis are taking their toll on local production this summer,” said Innes Willox, chief executive of Ai Group, which represents businesses. Its performance of manufacturing index fell in January to its lowest level for five years.
The Australian government has established an initial $1.3 billion bush-fire recovery fund. Still, a big uncertainty is how quickly two of the country’s biggest industries—tourism and agriculture—bounce back.
Tourism operators say longer-term bookings are down after images of Australia on fire went global. Many wilderness areas and campgrounds popular with domestic tourists remain shut. Last month, authorities had scrambled to get tourists out of a 5,000-square-mile zone threatened by fire, with many visitors evacuated from the cut-off beach resort of Mallacoota by a naval ship.
A family of evacuees from China's Wuhan city are quarantined at the Australian Immigration Detention Centre on Christmas Island, an Australian territory.
Photo: richard wainwright/Shutterstock“If you saw that TV vision would you be bringing your kids back down here?” said Paul Preston, who has owned the Beachcomber Caravan Park in Mallacoota for around 20 years.
Oxford Economics, an advisory firm, last month estimated losses to Australia’s tourism industry at $3 billion, or around 5% of revenue for accommodation and food services, noting the fires happened during peak travel season. “But the final impact could be higher than this,” it said.
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Since then, the tourism industry has suffered another blow as the coronavirus spread. Australia’s government has barred foreign nationals who have been in mainland China from entering the country. Qantas Airways Ltd., Australia’s national flag carrier, has suspended flights to the mainland.
To assess the fires impact, Commonwealth Bank of Australia studied salary data as a proxy for economic activity in the aftermath of previous natural disasters. It found the negative effects of previous bush fires were more enduring than from floods.
Shane Oliver, chief economist at AMP Capital, said rebuilding may not happen as quickly as many experts think.
Insurers could become leery about covering homes where there is a fire risk. Some analysts say banks have recently been unwilling to give home loans to people in inland areas. Builders may also wait to see if an inquiry into the bush-fire disaster resets construction codes.
“Some rural communities may never fully recover, particularly where industries have been destroyed,” Mr. Oliver said.
In eastern Australia, the fires follow a three-year drought that has stretched rural finances. Crops and livestock herds can take years to rebuild. Many farmers lost equipment and fences that weren’t insured.
Stephen Shipton, who runs a 1,100-acre farm in Cobargo, New South Wales, lost a third of his cattle and estimates it will be three years before his herd recovers. He estimated losses from the fires could exceed $200,000, with higher costs looming as farmers compete for hay and fodder.
“I can’t afford to buy any cattle at this point because I’ve got too many other things to be putting my money toward—such as fencing, piping and infrastructure,” he said.
Write to David Winning at david.winning@wsj.com and James Glynn at james.glynn@wsj.com
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2020-02-09 10:30:00Z
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