Mother nature may be about to deal another blow to Australian economic growth

Ian Waldie/Getty Images

Australia’s economy, already growing below trend, may be about to be dealt another blow from mother nature.

According to analysis provided by George Tharenou and Scott Haslem of UBS, a potential El Nino event for southeast Australia, something the Bureau of Meteorology (BOM) believes will develop this year, could wipe an additional 0.25% off Australian GDP on the back off falling rural exports.

The BOM state that El nino events mean “Australian rainfall is usually reduced through winter–spring, particularly across the eastern and northern parts of the continent.”

Here’s their analysis:

“While the majority of El Niño events are associated with drought in Australia, the overall impact on GDP depends on the relative intensity of the event as well as the timing of rainfall. A strong El Niño historically dragged annual GDP by up to ½%pt y/y. Hence, with the current value of total rural exports at ~$41bn, which have fallen over time to ~13% of total exports, or ~2½% of GDP – a decline in export volumes similar to the severe El Niño in 02/03 (-11% y/y) could potentially subtract ~¼%pt y/y from GDP growth in FY16. Nonetheless, given the uncertainty of weather, we think El Niño, at this stage, is still only a modest downside risk to our (already below consensus) real GDP forecast of 2.3% y/y in 2015 and 2.7% y/y in 2016”.

And here’s a chart showing how past El Nino events, shaded in pink, has corresponded with reduced farm contribution to Australian GDP.

The UBS analysis is a little bleaker than the Department of Agriculture’s own economic forecaster, ABARES, which put out its own predictions for the financial year ahead yesterday, declaring that it expects farm output to rise by 3% in the coming 12 months, with livestock prices driving the value higher.

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