The economic effect of Australia's bushfires on New Zealand could be enormous [New Zealand Listener, 25/01/20]

New Zealand is struggling with housing and infrastructure challenges, but they will become much worse if Australia’s bushfires result in mass transtasman migration here. 

Two German tourists wear masks in Sydney. Photo/Getty Images

The short-term effect of Australia’s bushfires on New Zealand is likely to be small but the long-term implications could be enormous, says ANZ chief economist Sharon Zollner.

“Australia has had drought after drought and at some point you have to start asking the question, ‘Is this just an incredible run of bad luck or is this the new normal?’”

Catastrophic as Australia’s bushfire season has been to date, economists are picking most of the negative impacts to be felt in consumer confidence, tourism and the affected regions, with only a small effect on the Australian economy overall.

ANZ Research expects Australia’s GDP to be down by 0.1-0.2 percentage points in the final quarter of 2019 and the first quarter of 2020. “This is necessarily a best first guess and will be refined as more information comes to hand,” says David Plank, ANZ’s head of Australian economics.

Westpac also says the economic effect of the fires is “highly uncertain”. The areas affected account for about 1% of the Australian economy, mostly in agriculture and tourism, the bank’s economists say in a just-released economic overview.

“Initial indications suggest the main direct negative impacts will be on local tourism activity, with potential disruptions from smoke pollution affecting the major capital cities. Indirect effects through a hit to confidence and impacts on the wider tourism industry are harder to assess but could be similar in scale.”

Westpac expects a reduction in GDP of between 0.2% and 0.5%.

Luck has run out

Although the overall effect on economic growth may be modest, and the ecological impact disastrous, Zollner is inclined to agree with those who think the biggest effect – other than to those who have directly suffered personal losses – will be on the Australian psyche. In particular, she sees Australians questioning whether they are in fact in “the lucky country”.

“From a purely economic perspective, in the short term the impacts are probably not a game changer, not least because Australia, like New Zealand, is one of the most urbanised countries in the world,” she says.

The more interesting questions are how the fires and related droughts might affect trade and migration decisions over time.

“The number of New Zealand passport holders living in Australia is huge and every Australian has the right to move here. If the long-term pattern of people moving west [from New Zealand to Australia] changes direction, that is potentially a massive shock for the New Zealand economy.

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