Thomas White Global Investing
Australia Stamp
February 17, 2009
A Postcard from the Asia Pacific
Australia: Fires Burn Economy

Australian bushfires

More than 300,000 hectares of land stretching across southern Victoria have been damaged by the fires, along with 750 homes.

Captain James Cook once called Australia the ‘continent of smoke’- an apt description as southeastern Australia currently lies ravaged by bushfires.

These bushfires have caused 170 deaths already, with the death toll expected to cross 200. But the economic damage is mounting as well. As firefighters tried to quell the raging fires, property damage is already anticipated to exceed the $200 million price tag of the 1983 Ash Wednesday fires.

Analysts say that immediate insurance losses may be more than AUS$500 million ($341.8 million), with the wider shock to the economy easily exceeding $2 billion. This comes at a time when Australia is already struggling to pass a second stimulus package to boost its beleaguered economy. Shares of major insurers plunged in the aftermath. It is not just the insurance industry that is affected – the Australian agriculture sector will also be under stress as vineyards wilt under the heat.

Not all is lost though. Despite the personal and environmental impact of the tragedy, rebuilding after the fires might provide a small fillip to the faltering Australian economy, adding around 0.25% to 0.4% to the GDP over the next one-year or so, according to Goldman Sachs.

Australian Prime Minister Kevin Rudd called the bushfires a ‘terrible and devastating tragedy.’ Fires are an intrinsic nature of the Australian bush, with around 84 houses destroyed by bushfires each year. The fires are almost impossible to prevent, although police suspect at least some of the fires to be the work of arsonists.

Rudd’s leadership has been under the scanner recently, and these bushfires add to what has already been a stormy economic phase. Record temperatures are still fuelling strong winds, which might make the task of containing these fires even more difficult. Adding more fuel to the fires, one of Australia’s biggest sources of revenue, mining, is being hit by a slump in demand from China, the country’s main customer. These bushfires are not just a wake-up call on the effects of climate change but a severe test of strength for an embattled nation as the economic crisis continues to take its toll.


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