Australia: Greater economic impact from unprecedented bushfires – ANZ

In the view of analysts at ANZ, the size, intensity and duration of the current Australian bushfires mean that they will almost certainly have a larger economic impact than past fires.

Key Quotes

“The impact on consumer sentiment from the fires and associated haze cloaking major cities is likely to be a key driver of the economic impact at a national level. The recent ANZ Job Ads and ANZ-Roy Morgan Australian Consumer Confidence reports provide an early signal of an identifiable economic impact.”

“While the current bushfires are unprecedented, there are material offsets to the negative impact from insurance payments and assistance from the Commonwealth and state governments. Commonwealth and state government funding committed so far is likely to rise further. We think the support for affected communities during and following these tragic events, along with wider economic benefits that could be gained, justifies current and additional fiscal loosening, as required.”

“This leaves us thinking that the immediate impact on GDP over the final quarter of 2019 and the first quarter of 2020 will be negative, but most likely not beyond 0.1–0.2ppt per quarter at most. This is necessarily a best first guess, and it will be refined as more information comes to hand. This initial impact will be offset (to at least some extent) in later quarters, as rebuilding gets underway.”

“National disasters are more appropriately an issue for fiscal, rather than monetary, policy. Government spending measures can be targeted on the areas and people most acutely affected, whereas monetary policy is a tool with much broader impact. There might be a case for a monetary policy response if the fires trigger ongoing national effects, such as a sustained loss in consumer confidence. As it happens, we were already forecasting a 25bp February rate cut from the RBA, and that call is unaffected by the current assessment of the impact of the bushfires.”