Chief economist update: Bushfires singe growth, surplus predictions

In between coughs on this smokey, hazy summer's day in Melbourne - yes, the bushfires are still raging and I can smell and taste the smoke as I write - two headlines caught my attention this morning.

The first one is from Reuters (14 January 2020), "Australian economic outlook overshadowed by bushfires, drought: Reuters poll".

According to the article: "Economists polled by Reuters forecast Australia's A$2 trillion ($1.4 trillion) of annual gross domestic product (GDP) would expand 1.8% in 2019, down from predictions of 1.9% in the previous poll and 2.7% early last year."

"Growth was seen picking up modestly to only 2.3% this year, again down from 2.5% in the previous poll. The outlook for 2021 held at 2.5%, still short of the 2.75% that is considered trend."

These compare with the Reserve Bank of Australia's (RBA) GDP growth forecasts - published in its Statement on Monetary Policy (released in November 2019) - of 2.25% at the end of 2019; 2.75% in 2020; and, 3% in 2021.

The second headline was from today's The Australian: "Bushfires: Recovery funds to hit budget surplus".

"Scott Morrison is preparing to unveil new funding and recovery measures in response to calls to fast-track financial and logistical support for small businesses, tourism­ operators and key regiona­l industries ravaged by the bushfire disaster," it states.

That's on top of the A$2 billion the prime minister announced earlier this year for the establishment of the National Bushfire Recovery Agency, making good on his promise that: "If further funds are required, further funds will be provided."

The cynic in me whispers, 'Nothing beats a big drop in the polls to get one going, ''ey'?

Just as I scribbled earlier this year, it would take a miracle if Scotty is beamed up in the next elections. Nobody will forget him holidaying and hanging loose in Hawaii while Australia burned.

The prospect of slower economic growth and increased government spending spells bye, bye surplus.

Then again, many - led by the RBA and including the Financial Standard - have been calling on the government to ditch its obsession with the budget surplus long before the bushfire catastrophe.

It's pitiful and a shame that Prime Minister Morrison and Federal Treasurer Frydenberg were forced to capitulate only at a great cost to Australian lives and property.

This highlights the criticism du' jour of Australian politics - it's all about winning the next election ... no forward thinking, no longer term plan.

Because of this, the country had been burning long before the first bushfires were sparked.

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