Bushfires to have a positive economic impact

Economic growth will take a 0.3 percentage point hit over the December and January quarters due to Australia’s bushfire crisis, according to the latest analysis from Goldman Sachs.

But could it be the bushfires actually have an economic stimulus?

Devastation is rightly used to describe the impact on those individuals and communities affected by the fires. But could they have a positive impact on the economy?

Both the public and private sectors are likely to be pumping a significant amount of dollars into locations affected by the economy, for example:

• The Federal Government has announced a $2bn National Bushfire Recovery Fund
• The NSW government has announced $1bn infrastructure package fire-affected communities
• Suncorp and IAG have received $345m and $160m of bushfire-related insurance claims

Once these funds start to flow into these communities, they will have a significant impact on the local economies.  In six-months’ time, it may be hard to get hold of a tradie because they will be working on some of the reconstruction projects.

And while no-one would ever wish these events on anyone, Doctors and pharmacists are likely to be very busy over the next few months, assisting the recovery.

Here in, lies the rub – we see lots of negative headlines about the economy.  But the picture is probably stronger (but by no means sublime) than the media lets on.

This week retail sales figures came out that were better than expected.  Seasonally adjusted retail sales surged 0.9 per cent in November, surprising economists who had expected just 0.4 per cent growth.

And Australia recorded its 23rd consecutive monthly trade surplus after stronger coal, iron ore and gas exports saw a $1.7 billion jump to a better than expected $5.8 billion in November, but imports have slowed – sparking concerns about consumption.

The importation of goods and services fell 3 per cent or $1 billion in November. Consumption goods fell 7 per cent or $610 million.

To cap off the bad news, ANZ’s monthly Australian job ads survey, fell 6.7 per cent in December in seasonally adjusted terms – partly due to the bush fires.

But with the Reserve Bank likely to drop interest rates further and cash to be splashed across much of NSW, VIC and SA, local economies are likely to be boosted.

None of us ever want to see these bushfires again.  But we may come back from them stronger than before.