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Monthly economic e-news – February 2020

13 February 2020

Bushfires test our resilience and our confidence

In recent months, catastrophic bushfires have burned through more than five million hectares in NSW with further damage in Queensland as well as South and Western Australia.

Many communities have shown remarkable resilience in the face of the fires but the widespread destruction has taken its toll on our confidence. The latest Westpac-Melbourne Institute Index of Consumer Sentiment survey which revealed a fall of 1.8% in January to just 93.4, one of the lowest results in more than ten years.

Graph

Source: Westpac-Melbourne Institute, Trading Economics

Impact of the bushfires on economy and the broader community

The fires have devastated many regional communities with lives lost and the destruction of thousands of properties along with many local businesses.

Forecasts vary but some analysts predict that the fires could shave between 0.4% and 0.5% off Australia’s GDP growth rate over the next two quarters.

Credit rating agency, Moody’s, have estimated that the total economic damage could exceed the $4.4 billion cost of the 2009 Victorian Black Saturday fires, one of Australia’s worst bushfire disasters.

Industries that have been directly affected include tourism, transport, agriculture and infrastructure. Many people in regional areas are employed in these industries and may be vulnerable to job losses in the short to medium term.

The fires have also created health risks with residents in regional areas and some of our major cities exposed to high levels of smoke pollution, and blazes in catchment areas potentially contaminating some of our key water supplies.

Rebuilding process is underway

The good news is that the traditional bushfire season is finally nearing its end and recent rain has reduced the severity of fires around the state.

Much of the attention is now turning to the rebuilding phase and that includes not only the reconstruction of residential properties but the rebuilding of infrastructure and businesses along with the remediation of the environment.

The Federal Government has relaxed its commitment to a Budget surplus and pledged $2 billion in fire relief to flow over the next two years. This includes an immediate $76 million recovery package for one of our hardest hit sectors.

Tourism accounts for approximately 3% of Australia’s GDP and employs close to one million workers in communities across the country.

Global media coverage of the bushfires and the outbreak of the Coronavirus has significantly reduced international visitor numbers. The Australian Tourism Export Council estimates the fires alone could cost the country more than $4 billion by the end of the year.

Overall, Australia’s GDP may take a temporary hit over the next six months while business and consumer confidence is likely to recover as the rebuilding process gets underway.

However, this process takes time. Bushfires hit Tathra on the NSW south coast in March 2018 and local residents are still in the process of rebuilding with many estimating it may take years before it is complete.

Managing the long-term risks of climate change

Disasters such as catastrophic bushfires have traditionally been treated as one-off events but there is clear evidence of a fundamental shift in our global climate.

That’s why it’s now absolutely essential for all super funds to manage the long-term risks of climate change right across their investment portfolio.

It’s not only essential to protect our members’ retirement savings but also the health of our local communities and our environment.

 

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Markets at a glance

for the month ending 31 January 2020

Australian shares1 up by 4.75% 

Australian Government Bonds yield2 down to 0.965%

Australian dollar down to US$0.6724

noArrow Cash rate3 steady at 0.75%*

International shares4 down by 0.70%

1 ASX 200 Accumulation Index
2 Yield on 10 year Australian Government Bonds
3 RBA cash rate
4 MSCI – World ex Australia (USD)

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