Wednesday, June 1, 2011

Australia’s Weather and GDP

Weather affects economic activities every day, and sometimes the effects are large enough to push around the economy in aggregate. Weather does the most economic damage when it closes the places where people work. This is not just buildings, but also fields, roads, bridges, and especially this year in Australia, mines and railroads.

Australia’s economy would have continued its expansion in the first quarter but for the extreme weather. After the epic flooding in the northeast, though, no one was surprised to see the first quarter GDP down 1.2 percent compared to the previous quarter. It is the largest GDP decline in Australia since the 1991 recession.

Most of the effects of weather are temporary. With mines open again and some buildings being rebuilt, the second quarter GDP is likely to show an increase as large as the decrease in the first quarter.