Bushfires deal blow to confidence in the economy: survey

Devastating bushfires have been blamed for a ‘massive’ slump in Australians’ confidence in the economy.

The aftermath of the bushfires that swept through Mogo in NSW. Picture: AFP

The bushfires raging through huge tracts of NSW and Victoria have smashed Australians’ confidence in the economy, which has retuned back to lows plumbed during the global financial crisis.

ANZ-Roy Morgan’s weekly survey of consumer confidence, conducted last weekend, found sentiment around “current economic conditions” was down a massive 13 per cent. The measure gauging confidence around “future economic conditions” slumped 8.1 per cent.

“Current economic conditions are at their lowest level since the GFC, while sentiment toward the future economic outlook is at its lowest level since 1994,” ANZ head of Australian economics David Plank said.

“Sharp falls in both the current and future economic outlooks indicates to us that the bush fires are almost certainly the key cause.”

Treasurer Josh Frydenberg said on Tuesday that the ongoing crisis would have a “significant” economic impact.

The shock to regional and local communities is and will be severe, but economists are less rattled by the potential damage to the national economy from the bushfire emergency.

Analysis by Goldman Sachs’ Andrew Boak points towards a “temporary headwind” which could shave 0.3 percentage points, or $1.5 billion, off GDP growth in the six months to March.

Major bushfires do, however, have a “noticeable” impact on farm production and business investment over the short-term, with both typically dropping 3 per cent during and immediately after the crisis, Mr Boak said.

Economists also noted that the spending associated with recovery and rebuilding in the aftermath of the fire will offset the losses to economic impact over the longer term.

Prime Minister Scott Morrison on Monday announced a further $2 billion in this calendar year and the next to aid bushfire and drought recovery, and promised to “do whatever it takes” and “whatever it costs” to help affected communities rebuild and recover.

On Tuesday the head of the newly created national disaster recovery agency said he expects money from the $2bn fund will begin flowing to fire-ravaged communities “within the week”.

Mr Boak stressed the “inherent uncertainties” around the current bushfires, which are of an historical scale. The size and reach of the crisis may mean estimates based on historical data may underplay the potential hit to farm production or international tourism.

“The smoke haze around major population centres could weigh on spending in communities not directly affected by the fires,” Mr Boak said.

“This is an unprecedented crisis,” NAB agricultural economist Phin Ziebell told The Australian. “I don’t think there is a reference point for it.”

As the bushfire crisis has intensified, futures traders have moved to price in a higher chance of a Reserve Bank rate cut next month to above 50 per cent.

Mr Boak said he “would not be surprised” to see the economic risk from bushfires highlighted in the RBA’s upcoming Statement on Monetary Policy, due February 7.

Households usually start a new year in a more upbeat mood, but worries around the economy dragged ANZ’s overall consumer confidence index down 1.7 per cent to 106 points – the lowest reading in more than four years.

The index held above 100 points, indicating more optimists than pessimists, but the gauge has declined sharply since reaching a peak of 120 in April of last year.

When it came to the economy, the survey revealed pessimists far outweigh optimists. Readings on current and future economic conditions, respectively, were recorded at 79 and 91 points.

Propping up households’ overall confidence was sentiment towards their own financial circumstances. That gauge climbed marginally to 125 points, while confidence to “buy a major household item” lifted 5 per cent to 123 points.

Consumers’ rising confidence in their financial circumstances “offers the prospect that the impact on overall consumer confidence from the weekend’s terrible events may be relatively short-lived,” Mr Plank said. “The policy steps taken by the federal government in recent days could contribute to that outcome.”

“We are mindful, of course, that there is likely still bad news to come about the impact of last weekend’s fires,” Mr Plank said.

“There is also a lot of hot and dry weather to come before the bushfire season is over.”