Australia was recently ravaged by the worst wildfire seen in decades, with large swaths of the country devastated since the fire season began in late July 2019. At least 28 people have died nationwide, and in the state of New South Wales (NSW) alone, more than 3000 homes were damaged or destroyed. State and federal authorities struggled to contain the massive blazes, even with firefighting assistance from other countries like the United States. All this was exacerbated by persistent heat and drought, and many have pointed to climate change as a factor, which has made natural disasters bad to worse. In early December 2019, the smoke was so unhealthy in Sydney that the air quality measured ’11 times the hazardous level’.
In total, more than 7.3 million hectares have been burned across Australia’s six states, an area larger than the countries of Belgium and Denmark combined. About 1.25 billion animals have been affected by these bushfires. One-third of the koalas have been killed, while a third of their habitat has been destroyed. Scientists fear long term damage to many sensitive ecosystems.
ECONOMIC BREAKDOWN: Estimates of the economic damage of these fires have also rolled in, some of them as big and unprecedented as is the scale of the fires themselves. Insurers have received claims worth 126 million pounds since October and it is expected that the number will grow significantly. Consultancy SGS Economics and Planning has estimated that Sydney’s economy loses as much as A$150 million each day, as it continues to be blanketed with a toxic haze from smoke billowing in from the fires. The economy faces pressure from increasingly severe heat and storms from climate change, threatening agriculture to the property to tourism. The Climate Council estimates cumulative damage from reduced agricultural and labor productivity might reach A$19 billion by 2030, A$211 billion by 2050 and a massive $A4 trillion by 2100.
SGS Economics estimated that Sydney roughly generates A$1.2 billion a day worth of economic activity, but the haze is causing between A$12 million and A$50 million worth of daily disruption. This cost is due to people missing work because of feeling unhealthy, disruption of transport services, and workers abandoning their desks because the haze tripped their fire alarms.
RETHINKING ON VOLUNTEERS: The direct cost of fighting the fires could blow out dramatically too, especially in case of reliance on aviation. Australia has long relied on volunteers for fighting fires, largely because there is a need for a surge of additional resources during emergencies, and also it is extremely expensive to deploy paid firefighters over such large areas. However, the recent fires are so extreme that it might force the authorities to rethink their model, as it is not realistic to have volunteer brigades working for a protracted season. Prime Minister Scott Morrison has pledged an additional A$11 million for the National Aerial Firefighting Centre but dismissed calls for more support for volunteers.
THE TWO MOST HIT SECTORS: Rains in Australia brought some relief; however, the tourism industry has been hit quite hard. Damage to the industry from the fires has approached A$1 billion and may reach A$4.5 billion by the end of 2020, according to estimates from Australian tourism bodies.
A fire in early January, scorched more than 2,00,000 hectares on the island, located off the coast of South Australia, in blazes described as ‘Hell on Earth’. The government has announced that it shall channel $76 million in what it described as the initial push to help the country’s A$152 billion tourism industry, which accounts for more than 3% of the Australian economic output.
Bookings from the key international market to Australia were down by 30% and 40%. Domestic bookings across the country were down nearly 70%, according to Australian media.
The second deeply impacted industry has been agriculture. The country’s dairy supply has been hit the hardest, with key milk-producing states Victoria and New South Wales, having suffered the greatest loss of farmland and infrastructure damage. More than 11.4 million hectares have been blackened, which accounts for 1.5% of the country’s land area. There has been a loss of 1.7 million sheep, and 4,50,000 head of cattle, which results in a 2.4% reduction in national sheep flock and a 1.8% drop in total cattle population by 2020. This will also significantly reduce Australia’s wood production. The output of shorn wool is forecasted to drop by 9.2% from the last year, according to the Australian Wool Innovation Forecast.
As far as wine is concerned, New South Wales is the largest wine-producing state after South Australia and contributes a third to the country’s output. Individual vineyards and wineries have suffered devastating damage, which would take years to recover. In addition, Australia is facing dwindling honey production as the wildfires have reduced the pollen and nectar honeybees require to survive and make honey. In New South Wales, which produces 45% of the country’s honey, thousands of hives have been burned and damaged. The state’s honey production will be 30% below the historical average for the next 10 years.
CONCLUSION: However, it is expected that growth should gain some traction, thanks to the strong domestic demand. A possible pick-up in wage growth, coupled with a tight labor market and modest inflation, is expected to support household spending, while investment should be stimulated through lower interest rates and a rebound in the housing market. The expected growth rate in 2021 is strengthening to 2.5%. However, the coronavirus and the wildfires continue to qualify as roadblocks and cloud this outlook.