Australian living standards will be constrained due to the cost of adapting to climate change, economists say.
Chief economist of BIS Oxford Economics Sarah Hunter says more investment will go towards adaptation and mitigation technologies, rather than adding to the economy’s productive potential.
“We will still see rising living standards over time, but as a result of having to adapt and mitigate against climate change-related shifts, our living standards are lower than they would otherwise be,” she told reporters on Friday.
The economics firm is analysing the cost of climate change as well as the financial impact of this season’s unprecedented bushfires across the country.
The impact on tourism, retail spending and agriculture are of most concern, but it will be some time before final figures are known.
Dr Hunter says initial estimates point to a $4.5 billion loss to tourism this year.
“There’s obviously significant concern that that shift in sentiment and the perception of Australia as a clean and safe and very pleasant destination to travel to will have a significant negative drag on our tourism sector,” she said.
Agriculture was already suffering from drought before the bushfires, with meat prices having risen.
“The bushfires are really going to exacerbate that,” Dr Hunter said.
“There’s additional loss of livestock, the beef herds and the sheep herds in particular.”
As agriculture makes up a relatively small share of Australia’s economy the likely drag will be about 0.1 or 0.2 per cent, Dr Hunter said.
Economists are also concerned about the already low consumer sentiment and confidence.
“That’s a significant drag on the economy. In terms of expenditure, consumption is the largest component of GDP,” Dr Hunter said.
“And if consumption is weak it’s very hard for us to see a marked acceleration in GDP growth over the forecast horizon.”
Retail figures are likely to undergo a “double whammy” in terms of the subdued domestic environment as well as losses from tourism, Dr Hunter added.
National accounts data to be released in June will provide a clearer look at the economic impact of the bushfires, as the figures will relate to this quarter.
Economic analysis of particular areas of Australia, such as the devastated Kangaroo Island, will occur once more data is available.
The Morrison government has put $2 billion towards the bushfire recovery efforts, spread across packages relating to tourism, small business, health, local councils and other sectors.