Impact of Blazing Bushfires Leave the Cost of Inaction Obvious

Macro 6 minutes to read

Eleanor Creagh

Australian Market Strategist

Summary:  The impact of the climate crisis on public policy and investment decisions will be broad reaching. As the decade begins alongside a raging bushfire crisis devastating over 5mn hectares of land and over 400mn animals in Australia, old paradigms will be overhauled in order to face environmental challenges and stave off disaster.


Australia's climate alone has heated by greater than 1 °C since 1910, causing an increase in the frequency of extreme heat events, drought and fires. In fact, 2019 has been the hottest and driest year on records dating back to 1910, according to the Bureau of Meteorology.

The crisis highlights how vulnerable Australia, the worlds 3rd largest carbon polluter and driest-inhabited continent, is to environmental risks as our planets temperature rises. The current bushfire crisis alone will have broad reaching economic impacts as fires and thick smoke engulf Australia, leaving the air quality worse than Delhi, Mumbai and Beijing. The impact is hard to gauge at present but will cost the economy millions of dollars, factoring the damaging disruption to tourism, trade, construction, agricultural activities and retail/eating out. This at a time when the underlying economy is already weak and sluggish, consumers are reigning in their discretionary spend and saving more and the private sector is in recession.

At present tourists holidaying across the South coast of New South Wales are being told to evacuate ahead of more record breaking hot weather this weekend. Tourism plays a significant part in Australia's economy, contributing 3.2% to GDP and 4.9% to employment in 2016–17, according to Tourism research Australia. And for many visitors Australia is seen as getaway free from the smog that engulfs many heavily polluted cities across Asia. The thick smoke that is lingering over Australia’s East coast has left air quality at more than 10 times hazardous levels according to local health authorities. A global air quality index ranked Canberra’s air worse than New Delhi, India or Lahore, Pakistan. And Sydney’s air quality is below that of renowned poor quality polluted air in Beijing and Jakarta. Restaurants and cafes will also be hit as healthcare professionals urge people to limit outdoor exercise and activities whilst the air quality remains hazardous. Yet another reason for the already cautious consumer to limit their discretionary spend. This hit coming at a time of year which is seasonally busy, being the height of summer.

Bushfires are also cutting off major transport routes and impacting regional trade and trucking industry which could potentially lead to food shortages. Authorities have advised the Eyre Highway — the only sealed road linking Western Australia and South Australia — will be closed for at least the next five days. Leading to disruption in trade and transport of fruit and vegetable produce, even temperature controlled medicines may be in short supply in Western Australia if road closures persist.

We have previously outlined that the increasingly poor state of the Australian economy and the Reserve Bank's failure to meet its objectives, combine to make further rate cuts inevitable. We have detailed the RBA will cut the cash rate again in February and once more in 2020 taking the cash rate to 0.25%, the effective lower bound. Raging bushfires, and a now resilient Aussie dollar lifting off support levels will only add to the ongoing pressure on the RBA, particularly whilst the government continue to sit on the sidelines leaving the heavy lifting to the central bank. Meaning the domestic outlook will continue to place downwards pressure on the currency’s recent rally and bond yield yields.

These impacts are not just a one off, longer term effects of a warmer Australia will continue to pressure agricultural productivity, tourism and other industries. As the impact of drought, unseasonably heavy rains, temperature changes and fires affects agricultural output and productivity, a clear outcome is likely to be increased food prices. This translates via loss of farmland or production capacity as well as crop destruction, or increased costs of exposure to climate variability. A continued increase in frequency of extreme weather related events poses a long term risk for the economy.

If the impact on the planet from the effects of climate change is not enough to spur change, the economic, political and social unrest/public backlash will be. Something we have written about in more detail here. As the incidence of extreme weather events wreaks havoc on farmland and agricultural activity and hence food prices, water security, biodiversity, welfare and human/animal health, the climate crisis will not be left unaddressed. The warming planet has direct implications for public policy, not just domestically but internationally, in order to avoid social unrest resulting from food price spikes, water security concerns and other severe disruptions. This paves the way for climate change to shape the public policy debate, not only in 2020, but for years to come. A UN report finds that to meet the goal of limiting warming to the pre-industrial level of 1.5 degrees Celsius over the next decade, nations must nearly halve emissions by 2030, warranting unprecedented action across the globe. Warming beyond 1.5 degrees will lead to increased risk of drought, wildfires, hurricanes and outbreaks of agricultural pests, according to climate scientists. Increased levels of atmospheric greenhouse gases reduces food quality, as well as prices pressuring not only household budgets but health. And people around the world will be at risk of losing their homes and livelihoods to natural disasters, resulting in cascading effects such as climate induced migration, inequality, unemployment and social unrest.

For the Australian Prime Minister, Scott Morrison, the current crisis will serve as a defining moment in his political career. The PM faces a growing backlash for his leadership failures, indifference to the climate debate, and support of coal mining industry and is blundering from failure to failure in his handling of the present disaster. Although no official opinion polls have been released, the current veil of contempt for the PM is palpable across social media outlets. Multiple derogatory hashtags are trending on twitter as the Australian public voice their discontent with the PM’s total lack of empathy and recycling spin-doctoring. If the PM does not change his tack and correct his current messaging, his leadership may never recuperate. Global emissions are anticipated to hit an all-time high this year and Australia lags most developed nations on credible climate policy. The PM has the opportunity now to take the bull by the horns in an attempt to restore his reputation and take critical action against climate change and national disaster management, now more so than ever as costs of inaction are all too obvious.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.