Compass Money: Economy on Fire
Australia’s record-breaking fire season this year has ravaged the country since October. Not only have the fires claimed the lives of hundreds of millions of animals and at least 33 people, but they are also taking an immense toll on the country’s economy. The immense bushfires have hurt Australia’s tourism, agriculture, and more. Economists and climate experts also believe that these fires portend coming trends from climate change.
This year’s fire season is one of (if not the) most destructive in the country’s history. Close to 11 million hectares of land, approximately the size of Iceland, have burned, and more than 120 fires continue to burn across the country. The fires have particularly damaged New South Wales, Australia’s most populous state, which is in the Southeast. In just that state, more than 2,300 homes have been destroyed, and insurance companies expect many more claims to be filed in coming weeks. Partly due to higher rates of construction in fire-prone areas, a record number of homes have burned down. Smoke from the fires has also caused alarmingly high air pollution in many parts of the country.
The fires have also critically damaged to one of Australia’s key economic sectors: tourism. The country gains more money from tourism than its combined annual exports of iron ore, coal, and natural gas, three sizable national industries. The fires highlight the sector’s vulnerability, especially since the summer fire season coincides with the peak season for tourism. Chris Richardson, the chief Australia economist at Deloitte, has said that, although the hits to the tourist industry have been rather concentrated thus far, “The fires could have a much broader economic effect if they damage public confidence and make Australians more cautious about spending money.”
Besides tourism, the fires have also hurt agriculture and have worsened a years-long economic slowdown. Australia has, incredibly, avoided recession in almost 30 years, largely due to smart policies and quick corrective action during the Asian recession of the 1990s and the financial crisis of 2008. Yet economic growth has since been slowing, due to a mix of the faltering retail industry and spillover from China’s slowing growth. The fires are yet another roadblock to Australia’s economic growth.
Many scientists agree that climate change and rising global temperatures led to this year’s fires’ severity. This fact has prompted discussion among Australians and international economic experts about the need to adjust economies to curb climate change’s effects. In Australia, this dialogue centers around the nation’s massive coal mining industry, which comes in a close second behind iron ore as Australia’s most valuable exports. However, coal also contributes to producing climate change-causing greenhouse gas emissions. Economists argue that rising temperatures and more frequent extreme weather, such as the Australian bushfires, will significantly harm human health, agriculture, tourism, infrastructure, and more.
As economists and state planners collectively wake up to the need to address climate change and its effects, Australia’s climate change-driven fires paint a picture of how bad things could become for people, economies, and the world. But, Australia may only be the beginning: if climate change is left unchecked, planners should expect worse to come.