The worst bushfires to ravage Australia in living memory could plunge the economy into recession for the first time in almost three decades, experts fear.
More than 6 million hectares of bushland have already burned, threatening homes and lives and unnerving local residents, particularly in New South Wales and Victoria.
Even before the infernos, the tightened cash register retail sector was struggling in the past fiscal year and recorded the weakest annual growth since the 1991 recession.
The worst bushfires to ravage Australia in living memory could plunge the economy into recession for the first time in almost three decades, experts fear (pictured is a father holding his daughter as flames threaten the east Victoria town of Mallacoota).
Digital Finance Analytics chief Martin North, an economist, said the bushfires could be enough to plunge Australia into a tech recession.
“It has increased the likelihood of a recession now compared to before,” he told Daily Mail Australia on Monday.
“It was already looking pretty weak in terms of our local economy.”
AMP Capital chief economist Shane Oliver said TV and social media images of the devastation were likely to hurt consumer confidence — even in cities untouched by the blazes.
“The real impact on the economy will come in the form of city dwellers being less willing to spend because of the negative bushfire news,” he said.
dr Oliver said a continuation of weak consumer spending in 2020 could be enough to trigger a recession.
More than 6 million hectares of bushland have already burned, threatening homes and lives and unnerving local residents, particularly in New South Wales and Victoria (pictured is Jesse Collins raising funds at an evacuation center in Cobargo on the NSW south coast).
“If it continues, it might, that’s a risk,” he said.
Australia’s economy grew well below average at 1.7 percent in the year to September.
dr Oliver predicted the bushfires could eat up to a percentage point off Australia’s annual gross domestic product in the December and March quarters.
Australian wages have also grown below average since 2013, further constraining consumers’ purchasing power.
Before the bushfires, Mr North said he had seen Australia’s economy “continue to falter but not necessarily enter a recession”.
He feared the natural disasters had increased the risk of a recession as the blazes and drought were likely to affect agricultural production.
Even before the infernos intensified, retail sales were already struggling with checkout activity last fiscal year, posting the weakest annual growth since the 1991 recession (pictured a woman shopping in Sydney on Christmas Eve 2019).
recession in Australia
Up until the 1991 recession, Australia had suffered economic downturns on average several times per decade.
A prolonged recession that began in September 1982 lasted a year, during a period of prolonged drought and the devastating Ash Wednesday bushfires in Victoria and South Australia. This was followed by another recession in 1981.
Another recession came in 1977 during an era of widespread strikes.
The economy also took a hit in the last two quarters of 1975 when Governor-General Sir John Kerr sacked Gough Whitlam as Labor Prime Minister.
A recession also occurred in late 1971 and early 1972, a few months before Billy McMahon lost the election and ended 23 years of coalition rule.
A credit crunch also triggered another recession in the June and September quarters of 1961, ending just two months before then-Prime Minister Robert Menzies remained in power with a single seat.
Source: Australian Bureau of Statistics National Accounts GDP data
“The psychological impact on a lot of people is quite negative right now, and that’s likely to lead to a further erosion of trust, which was already at low levels,” he said.
“The economy will do well and will probably slide into recession in the next 12 to 18 months.”
As the bushfire crisis worsened, the federal Treasury Department confirmed in December that the budget surplus planned for 2019-20 would be reduced from $7.1 billion to $5 billion.
On Monday Prime Minister Scott Morrison announced a $2 billion recovery fund to help Australians hit by the bushfires.
Mr North said the scale of the disaster could jeopardize Mr Morrison’s claim to the delivery of the first budget surplus since 2007, as taxpayers would likely be left with a huge infrastructure repair bill.
“The government will find it quite difficult to maintain this surplus with all that is claimed,” he said.
Barring rain, the only medium-term hope for the economy is the work that rebuilding devastated communities means for struggling builders.
“That could boost spending later on, but it will take time for that to really catch on,” Mr North said.
Vehicle sales in 2019 fell 7.8 percent to an eight-year low in a sign of weak economic activity, new data from the Federal Chamber of the Automobile Industry showed, released on Monday.
The Reserve Bank of Australia is widely expected to cut interest rates by a quarter of a point in February, taking the benchmark interest rate to a new record low of 0.5%.
AUSTRALIA’S BUSHFIRE CRISIS – WHAT YOU NEED TO KNOW
Evacuations are underway in NSW, Victoria and South Australia and there are emergency alerts as authorities predict the devastating bushfires will continue to burn until at least March.
At least 28 people have died in blazes across the country since the bushfire season began in October.
NEW SOUTH WALES/ACT
- Around 90 fires were burning in NSW as of Thursday morning
- 20 people dead
- More than 5.2 million hectares burned – that corresponds to the metropolitan areas of the five state capitals on the mainland
- 1,870 homes were destroyed, more than 3,774 outbuildings and 200 facilities were leveled
- 19 bushfires were burning in the Gippsland, Northeast and Alpine regions as of Thursday morning
- Five people dead
- More than 1.5 million hectares burned
- 387 houses were damaged or destroyed
- 602 non-residential buildings were also damaged
- Three people, including two from Kangaroo Island, are dead
- More than 274,000 hectares burned
- 161 houses were confirmed destroyed, along with 413 sheds and outbuildings
- 2.5 million hectares burned
- 48 houses were confirmed destroyed
- 1.5 million hectares burned
- One house was confirmed destroyed
- 30,000 hectares burned
- Two houses confirmed destroyed
- Five houses were confirmed destroyed