Australia's Massive Fires Threaten To Slow Decades-Long Economic Boom

Jan 12, 2020
Originally published on January 13, 2020 8:54 am

Australia calls itself the Lucky Country, a nation so fortunate in geography and natural resources that it hasn't had a recession in nearly three decades.

But the deadly wildfires raging through large parts of the country are slowing tourism and other key sectors that contribute to its impressive economic growth.

"Just the area of Australia that's now impacted is unheard of. So we are in uncertain territory," says Martin North, principal at the research firm Digital Finance Analytics.

The wildfires have killed more than two dozen people more than a billion animals. They've destroyed more than 1,800 houses, an untold number of commercial buildings and thousands of acres of prime farmland, according to the Insurance Council of Australia.

Insurance losses so far have totaled nearly a half billion dollars, but the numbers are likely to rise sharply, says Campbell Fuller, the council's head of communications.

"For [the fires] to burn across such a wide area, over such an extensive period, is uncommon. In fact, it's unprecedented to have that number of bushfires burning concurrently," he says.

The fires have damaged two pillars of the Australian economy: the agricultural sector, which was already weakened by a severe drought, and the all-important tourism industry.

Winter in the Northern Hemisphere is peak tourist season in Australia, when visitors from Asia and Europe flock to the country, eager to soak up the sun and enjoy the country's outdoor lifestyle.

As news of the wildfires spreads around the world, fewer tourists are arriving and those who do come have had to endure less-than-ideal conditions.

Even in Sydney, far from the fires, skies are so smoky that fire alarms have gone off in office buildings. Ferry service in the city's world-famous harbor has sometimes been canceled because of poor visibility.

The campground run by Fiona Austin in Shoalhaven, south of Sydney, is usually full this time of year, but tourists were ordered to evacuate, and only a few people remain.

"It's affected a lot of businesses, and I can't see people coming back at the moment when the fires are still burning," Austin told NPR's Jason Beaubien.

The fires mark something of a change of fortune for the Australian economy, sometimes called the Wonder Down Under.

The country has benefited enormously from its proximity to Asia, says Justin Wolfers, an Australian native who is a professor of economics and public policy at the University of Michigan.

"Not only did we start the last few decades a relatively rich country in the club of the first-world industrialized countries, we're also parked right next to Asia, which is where much of the world's growth has come from over the past few years," Wolfers says.

China, in particular, has been hungry for the kinds of commodities Australia has a lot of, such as coal, natural gas, wheat and wool, and it sends more tourists to Australia than any other country.

Wolfers says the Australian government has also demonstrated more skill than other countries at navigating the challenges of the global economy, like the Asian financial crisis of the late 1990s.

While the U.S. Congress was squabbling over how to address the Great Recession, the Canberra government was acting swiftly to stimulate spending and cut interest rates, he says.

Unlike other industrialized countries, Australia has experienced a steady rise in population, largely because of immigration, so even in slow times the economy has kept growing, Wolfers adds.

Some of that growth has eased in recent years, as China's economy has slowed. Australian consumers are spending less, and housing prices, which have skyrocketed in recent years, have fallen.

"The growth levels in Australia are lower than they've been in a very long time," North says. "We were already looking ... pretty shaky and that was before all of the bushfires."

One potential problem is that many Australians haven't updated their insurance policies over the years or have let them lapse altogether, he notes.

Australia has suffered through catastrophic fires before, such as the 2009 conflagration in Victoria, which did billions of dollars in damage. But the current fires are affecting a much bigger area, and they've also begun earlier, making it hard to assess how much they'll cost.

"What's really concerning to us is that this is still relatively early in our typical bushfire season" and there are worries about how much longer it will last, says economist Katrina Ell of Moody's Analytics.

Ell doesn't think a recession is likely, but North isn't as sure.

The fires started in relatively unpopulated areas, but they're moving closer to the cities, where they can do a lot more damage, he says.

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LULU GARCIA-NAVARRO, HOST:

Australia has gone nearly three decades without a recession. It's an enviable economic record. But as NPR's Jim Zarroli reports, the Australian wildfires are threatening key parts of the country's economy.

JIM ZARROLI, BYLINE: Normally, the campground run by Fiona Austin near the Australian city of Shoalhaven is full in January, but tourists have been ordered to evacuate the area. And with the fires still raging, she doesn't expect them to be back anytime soon.

FIONA AUSTIN: There is a lot of fear because they're being so changing and volatile. You know, people are still unsure as to whether they could flare up again.

ZARROLI: As planes carrying water to the wildfires buzz overhead, Austin tells NPR her campground is empty right now except for a few permanent residents.

AUSTIN: We're on 15 acres so - yeah. To only have a couple of tents here - here comes another plane - is very unusual for us.

ZARROLI: Australians call themselves the lucky country. The economy has been growing steadily since 1991, a remarkable run. Economist Justin Wolfers of the University of Michigan says that's partly because the population has grown a lot. But, he says, the country's been fortunate in some other ways, too.

JUSTIN WOLFERS: Not only did we start the last few decades a relatively rich country and in the club of the first-world industrialized countries; we're also parked right next to Asia, which is where much of the world's growth has come from over the past few years.

ZARROLI: As China has grown, it's been hungry for the kinds of commodities Australia has a lot of, like coal, natural gas, wheat and wool. China sends more tourists to Australia than any other country. But the rampaging fires are dealing a blow to the economy.

Martin North heads the research firm Digital Finance Analytics.

MARTIN NORTH: Just the area of Australia that's now impacted is unheard of. So we are in uncertain territory.

ZARROLI: The fires have destroyed more than 1,800 homes, as well as enormous amounts of prime farmland. Even in places far from the fires, work life is being disrupted. People with respiratory problems are staying home. Hospital visits are up. And construction crews can't work. In Sydney, ferries aren't running because of poor visibility in the harbor, says Katrina Ell of Moody's Analytics.

KATRINA ELL: There was a few days late December when fire alarms were actually going off in very large buildings within the city center just because of the poor air quality.

ZARROLI: As word of these conditions spreads around the world, tourism is taking a big hit. There's even been talk of rescheduling some of the big events that draw in millions of visitors each year, like the Australian Open and the Tour Down Under bike race. Martin North says this is happening at a time when the Australian economy was already softening a bit.

NORTH: We were already looking, I think, pretty shaky. And that was before all the bushfires.

ZARROLI: China's economy has slowed lately, and Australia has felt some pain. Unemployment ticked up last year. House prices, which have been skyrocketing for a long time, have taken a hit. Katrina Ell of Moody's Analytics doesn't think Australia is headed for a recession, but it's hard to know for sure.

ELL: What's really concerning to us is that this is still relatively early in our typical bushfire season. So there's concern about how much longer this bushfire season will run for.

ZARROLI: The longer the fires last, the more damage they will do. And that means that after almost 30 years of steady growth, the lucky country could finally see its luck run out.

Jim Zarroli, NPR News. Transcript provided by NPR, Copyright NPR.

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