Measuring natural disasters in the Australian economy

Historically, Australia has experienced natural disasters such as droughts, cyclones, floods and storms with the associated impacts reflected in economic statistics (although not always separately identifiable in those statistics).

In recent months Australia has experienced a number of natural disasters: large parts of Australia have been experiencing ongoing droughts, bushfires, damaging hailstorms, floods, and the global COVID-19 outbreak. These events will have had an impact on all aspects of the Australian economy to varying degrees.

This article provides an overview of where and when the economic impact of these events might be evident in measures of the economy. It also provides some measurement case studies from previous Australian natural disasters.

The information in this article is current as of the date of release. COVID-19 related events are rapidly evolving, the ABS is actively monitoring the impact of these events on official statistics and plans to publish additional information as events develop.

Understanding when the events will be reflected in the published data can be a challenge.

Monthly indicators of the economy such as the labour force survey, building approvals, international trade and retail sales are published up to 5 weeks after the period being measured (referred as the reference period). Monthly estimates of international travel movements (overseas arrivals and departures) are published 6 weeks after the month being measured.

Quarterly measures of the economy, including the national accounts and balance of payments are published 9 weeks after the end of the quarter (see chart 1).

Tables 1(a - d) sets out a high level summary of ABS regular statistical products.

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:

• Agricultural gross value added fell 6.1% through the year in September quarter 2019, reflecting continued drought conditions.
• Increases were seen in the number of livestock processed for meat through 2018-19 reflecting drought led de-stocking.  The number of cattle and calves slaughtered increased 10% through the year, while the number of sheep processed for mutton increased 15%.
• Increasing food prices (e.g. fruits prices up 6.8% in the December quarter 2019 CPI release).

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.

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 most recent ABS monthly statistics are for December 2019 retail trade and international trade, while labour force statistics are available for January 2020. No significant economic impacts have been detected in these monthly series.
• Economic Indicators for the December Quarter 2019 started being released in mid-February 2020. The national accounts for the December Quarter 2019 will be released on 4 March. A portion of the bushfire activity occurred during this quarter.
• Economic indicators for the March 2020 quarter (which will capture the remaining period of the bushfires) will be published on the ABS website from mid-April 2020, with the March quarter national accounts published on 3 June.

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:

• Construction with the largest industry classes Carpentry Services, House Construction, Electrical Services, and Plumbing Services.
• Agriculture with the largest industry classes Beef Cattle Farming, Sheep-Beef Cattle Farming, and Grain-Sheep or Grain Beef Cattle Farming.
• Rental, Hiring and Real Estate Services with the largest industry classes Non-Residential property Operators, Residential Property Operators, Real Estate Services and Accommodation.

Natural disasters might be seen in the following economic indicators:

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.

Tropical cyclone Yasi in 2011 in North Queensland caused an estimated $300 million loss in crops. About 75 per cent of banana crops were damaged, resulting in a rise of over 400 per cent in the price of bananas over the twelve months to June 2011. This saw an increase of fruit prices in the CPI of over 60 per cent compared to the previous year (chart 3).

Impacts of cyclones on the CPI can be found in:  6401.0 - Consumer Price Index, Australia, Mar 2017

In December 2010 Queensland experienced widespread flooding. The flooding led to lower production as measured in Australian National Accounts: National Income, Expenditure and Product December 2010 and March 2011 quarters (chart 4).

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.

SARS outbreak in 2003 resulted in a decline in visitor arrivals in Australia. This reduction was evident for five months from mid-March to mid-August followed by a one month recovery. As shown in Chart 5.

• The largest percentage decrease was for Chinese travellers (where the outbreak originated) - May 2003 being 78% lower than May 2002.
• The largest volume decrease was for Japanese travellers which decreased by just under 22,000 trips from May 2002 to May 2003.

The impact of SARS was less evident in ABS trade statistics.

• The impact of SARS on total travel service credits estimates was relatively minor with some small year on year decreases observed at the monthly level (April and May 2003) during the peak of the outbreak. This decrease was driven by a drop in visitor arrival numbers (the smaller impact on total travel service credits was at least partially offset by increases seen in Education-related travel).
• A more substantial impact was seen on total travel debits with year on year decreases seen for the months of March through to July in 2003, also driven by a drop in the number of Australians travelling overseas.

China's importance as an export trading partner for Australia, has risen substantially from 2002-03 with China's share of travel service credits rising from 8% in 2002-03 to 27% in 2018-19. Conversely Japan's share of Australia's travel service credits fallen from 8% in 2002-03 to 3% in 2018-19.