Economic and Financial Market Update: Bushfires & The Economy

Summary:

• The bushfire damage to date will be a small negative for the economy;
• The bigger worry for the RBA is the underlying economic momentum;
• There have been some better economic signs over the past couple of months;
• Unless the Q4 CPI number is low the RBA will keep rates unchanged in February.

'One Christmas time, when months of drought

Had parched the western creeks

The bushfires started in the north

And travelled south for weeks

At night along the river-side

The scene was grand and strange

The hill fires looked like lighted streets

Of cities in the range'

The Fire at Ross's Farm

- Henry Lawson

The big news for some months now have been the devastating bushfires. It has been both a major domestic story and a significant global one. It has been a topic of conversation at Hollywood award ceremonies as well as part of the IMF discussion on the global economic outlook.

As Henry Lawson's poem highlights bushfires have been part of the Australian landscape for a long time. But there are reasons why the current fire season has garnered plenty of attention:

• The length of the season both started earlier in the Eastern States and lasted longer (so far) than the usual season (the 2006-07 season went from September-January);
• According to Wikipedia the current bushfire season ranks 5th for land damage and 6th for fatalities. But none of the seasons with more damage had greater fatalities (and none with more fatalities had more damage). In the main this is because the big damage seasons took place in the largely uninhabited spaces of the NT;
• Unusually fires this season have occurred in all states and territories;
• According to the Australian Institute for Disaster Resilience (AIDR) bushfire seasons appear to be becoming more regular. AIDR also noted that between 1967 to 2013 the insurance and total costs of bushfires (around $26b) was almost equivalent to the cost of cyclones.