Modest fire hit to GDP

RBA expects payouts to shore up growth

RESERVE Bank governor Philip Lowe expects the summer’s bushfire crisis to singe December and March quarter Gross Domestic Product figures, but says the disaster will have little impact on the 2020 growth outlook as government grants and insurance payouts will assist with the rebuild.

Dr Lowe predicts a 0.2 per cent fire hit to GDP over the previous and current quarters as Australia comes to grips with the widespread destruction of homes, farms, businesses and public infrastructure since November.

But yesterday he added to recent optimism the economy had reached a gentle turning point, anticipating a “material rebuild” would leave the 2.75 per cent growth outlook to December 2020 “largely unaffected”.

“In assessing the impact of this on the Australian economy as a whole, we have taken into account that there will be a material rebuilding effort and that government grants and insurance payments will assist many people,” Dr Lowe told the National Press Club in Sydney.

In his first speech of the year, Dr Lowe also jumped to the defence of the central bank’s rate strategy in 2019, declaring the three 0.25 percentage point reductions since June as effective in helping households adjust their balance sheets.

Dr Lowe said while the case remained for further rate cuts in 2020, he warned of the inflationary effect on the housing bubble.

“Lower interest rates could also encourage more borrowing by households eager to buy residential property at a time when there is already a strong upswing in housing prices in place,” he said.

The RBA at its meeting on Tuesday left its growth outlook for the year unchanged, despite concerns over the effects of the bushfires and the coronavirus outbreak.

Economists remarked the central bank had “surprisingly” little to say about the headwinds of recent months after it held the cash rate at a record low 0.75 per cent and suggested the economy would continue to improve over the year.

Addressing the coronavirus situation, Dr Lowe suggested it remained difficult to asses the likely impacts, though the sharp bounce back following the 2003 SARS outbreak may provide a guide.