UBS forecasts bushfire hit to growth

UBS says bushfires could hit annual GDP growth by 0.2pc, but warns it is too early to tally the full impact.

Feeling the impact of the bushfires. Picture: Getty Images

UBS economists predict the bushfires ravaging the country could hit annual GDP growth by 0.2 per cent, but have warned it is too early to tally the full impact.

The equity research arm of the multinational investment fund suggested the ongoing catastrophe will “drag” down fourth-quarter and first-quarter GDP by potentially a percentage point per quarter.

It comes after Goldman Sachs last week suggested the fires could shave 0.3 per cent off GDP growth in the six months to March, while Westpac has forecast a total hit to economic growth of between 0.2 per cent and 0.5 per cent.

The UBS analysts expect the disaster will make a February interest rate cut by the RBA “more likely”, due to a rise in headline inflation from higher food costs and rising insurance premiums.

UBS currently expects the Reserve Bank to cut rates by 25 basis points ahead of downgrading the economic outlook in its February Statement on Monetary Policy.

UBS Economist George Tharenou said agriculture, tourism, retail and construction were most likely to be affected.

“While the direct impact of the bushfires has largely been outside capital cities and limited to rural/ regional areas, the indirect impact of smoke haze and on overall consumer confidence has been felt in the largest cities,” he said.

Industry estimates have suggested economic impacts could be similar to the 2009 Black Saturday Bushfires, which had an estimated cost of $4.4bn, or 0.2 per cent of annual GDP.

However, Mr Tharenou said a direct comparison between the two disasters is “challenging” due to their different sizes, locations and durations.