Measuring natural disasters in the Australian economy
Economic measurement of the drought
Ongoing drought conditions have had a wide impact on the Australian economy. Impacts are observed directly in ABS measures of agricultural production, and indirectly through supporting industries such as transport, wholesale and retail activity in rural and regional communities.
The agricultural industry directly accounts for 2.2 per cent of the Australian economy. Agriculture production data in the National Accounts is derived from a combination of ABS agricultural surveys (for actual outcomes) and ABARES estimates (where surveys are not available).
Rainfall deficiencies have affected significant areas of New South Wales and Queensland since early 2017, with drought declared for all of NSW and large parts of Qld in August 2018, and drier conditions extending south to Victoria and Tasmania, and west into South Australia and Western Australia. The Bureau of Meteorology declared 2019 Australia's warmest and driest year on record and drought conditions continued into 2020 in some parts of Australia.
Drought related down-turns in agricultural production were observed for the 2017-18 financial year in production estimates for the agricultural industry in the annual national accounts. While an economic impact of drought has been evident, quantifying the impact is challenging due to difficulty in distinguishing its influence from other factors affecting the industry (such as bushfires and floods).
In 2017-18, Value of Agricultural Commodities Produced fell 3% to $59 billion. Detailed information about where and which commodities were most impacted for these early stages are published in the 2017-18 Value of Agricultural Commodities Produced publication.
For 2018-19, a clearer impact of the drought on production will be released in Agricultural Commodities, Australia (cat no 7121.0) on 30 April 2020. Early indications from 2018-19 data released to date include:
The ABS has measured the impacts of drought events over many decades. In 2006-07 the ABS published an article on the impact of drought on the Agriculture industry, comparing these impacts to those of the 2002-03 drought event (see Feature Article: Impact of the drought on Agricultural production in 2006–07). As seen in the chart 2, the main impact in the 2006-07 drought was seen in a decline in the output of cereal crops. Other categories within farm output remained stable during this time.
Chart 2: Farm output, volume measures: seasonally adjusted
Economic measurement of the bushfires, storms and floods
Bushfires, storms and floods, while very different natural events, all have similar impacts on the economy. They can reduce production and incomes, damage and destroy assets within specific geographic areas, while also leading to a spike in insurance claims, potentially increased payment of government benefits and an increase in public and private expenditure as part of the recovery effort. The measurement challenges and impact on economic statistics of differing natural disasters are often similar.
The recent bushfires, storms, and floods could be reflected in a range of economic statistics across the December 2019 and March 2020 quarters.
The ABS maintains a dynamic register of organisations undertaking economic activity in Australia. This register shows the 43 Local Government Areas (LGA) that have received an Australian Government Grants Package payment for infrastructure and strengthening community resilience. There are a total of 200,955 businesses in these 43 LGAs, noting that some of these areas are quite large while impacts may be more localised. These businesses accounted for 8.5% of all active Australian businesses as at June 2019. Most of the businesses in these LGAs are small having employment of less than 4 persons.
Industries with the highest number of business counts in these LGAs are:
Business turnover and output: Production by business in the affected areas may be impacted during and after disaster periods. These impacts will be captured in the Quarterly Business Indicators Survey.
Labour market: Impacts on the broader labour market tend to be relatively minor. Where there are impacts they are most likely to be evident in the hours worked series.
Primary income: If Australians’ are unable to participate in paid work, this may flow into wages. Profits for businesses may be reduced through increased expenses due to repair or replacement as well as disruptions to business activity.
Household consumption: During the disaster it might be expected that household consumption in the affected regions will fall. Following the disaster, household consumption data will capture activity associated with the replacement of destroyed or damaged assets.
Private capital expenditure: The rebuilding of destroyed and damaged dwellings, commercial buildings and infrastructure will be captured in the Capital Expenditure Survey, the Building Activity Survey, and the Engineering Construction Survey.
Government expenditures: As a response to the bushfires Australian governments have announced a number of new initiatives to support recovery efforts. The new initiatives include capital, consumption and transfer expenditures, with the economic impact expected to become evident in the March quarter 2020.
Insurance claims: The household income account will show claims of insurance in net non-life insurance (cash transfers from financial corporations to households). The insurance claims are a form of secondary income and will be recognised in the national accounts at the time of the event that gave rise to the claim.
Data provided from the insurance sector shows that the claims from the recent bushfire events accrued roughly equally in the December 2019 and March 2020 quarters, although claims are still being processed and therefore this data is subject to revisions.
Donations: In the national accounts donations are recorded as a form of income accruing when the monetary (or in-kind) transfer is made. As such it is anticipated that the significant majority of donations will be recorded in the March quarter 2020 accounts.
Capital stock: The disasters have resulted in the loss of capital stock, including dwellings, non-residential buildings, productive infrastructure and livestock. If losses due to the bushfires are considered exceptional and catastrophic, the destruction of capital stock would be reflected in the other changes in the volume of assets account. This data is published in the annual National Accounts which, for the 2019-20 reference period, will be released in October 2020. At this time, and noting information is still evolving on the losses experienced, the ABS does not envisage implementing the exceptional and catastrophic loss treatment in this annual publication.
The economic impact of previous natural disasters – cyclones and floods – is set out in Box 1.
Economic measurement of the impact of the Corona Virus (COVID-19)
Key economic indicators for the period since the detection of COVID-19, the World Health Organisation’s declaration of an international health emergency on 30 January, and the travel restrictions from mainland China enacted from 1 February are yet to be published.
The first indicators covering periods when COVID-19 may have had an economic impact will be the January month 2020 releases of International Trade in Goods and Services (5 March 2020) and Retail Trade Survey (6 March 2020). An indication of the impact of overseas travel will be available with the release on January month Overseas Arrivals and Departures on 16 March 2020.
While the earliest impacts are expected to be seen in the tourism and education sectors, the situation is rapidly evolving and, with the passage of time, may start to impact a number of other indicators beyond international trade and travel. The ABS is monitoring potential impacts across the broad range of economic statistics including retail sales and household consumption, international merchandise trade, industrial production, income and employment, and financial markets. The ABS intends to publish additional information on these impacts as events develop.
Box 2 below sets out the impact of the SARS outbreak in 2003.