A water taxis drives by as smoke haze hangs over the Sydney Opera House in Sydney, Thursday, Nov. 21, 2019.Chinese visitors seeking a blue-sky break in Sydney’s summer instead have encountered wildfire-induced smog choking the city. (AP Photo/Rick Rycroft)
INTERNATIONAL - Chinese visitors seeking a blue-sky break in Sydney’s summer instead have encountered wildfire-induced smog choking the city, forcing tour operators to divert guests to other parts of Australia.

Restaurants and cafes are taking a hit as smoke puts off outdoor diners who typically seek to enjoy the warmer weather and longer evenings. Sydney accounts for one-quarter of Australia’s gross domestic product, consultancy SGS Economics and Planning estimates, and aside from the direct financial impact, the haze is hurting the harbor city’s global brand. 

“Sydney is a renowned ‘lung-cleansing’ destination for Chinese people,” said Lili Stephanie, general manager at AJ Travel Pty Ltd, which organizes trips and cruises in Australia. “In the face of such bad conditions, we have suggested to some clients that they spend more time in other cities.”

It’s still too early to quantify the economic impact of wildfires engulfing Australia’s drought-stricken east coast and sending smoke billowing into cities. At the very least, six weeks of ferocious blazes and intermittent thick haze are likely to take a chunk out of already weak household spending.

More broadly, the economy faces pressure from increasingly severe heat and storms from climate change. This threatens industries ranging from agriculture to property to tourism, and will slowly raise financial-stability risks.

Australia’s Climate Council estimates cumulative damage from reduced agricultural and labor productivity might reach A$19 billion ($13 billion) by 2030, A$211 billion by 2050 and a massive A$4 trillion by 2100.

Raging Fires

Construction and trade are also taking a hit as ports and building sites shut due to safety risks when air quality is particularly bad and visibility poor. Holidaymakers are likely to cancel vacations, damaging regional economies, as fires rage through the parched bushland along the coasts north and south of Sydney.

“The risk is we’ll see these events occur more frequently,” said Josh Williamson, a senior economist for Australia at Citigroup Inc. “This will mean potentially more shocks to the Australian economy.”

Citigroup estimates GDP could fall by a half-percentage point if the current dry spell ends up cutting farm output by 20%. Australia has recorded 36 straight months of hotter-than-normal temperatures -- and its hottest day on record this week -- in what is already the driest inhabited continent.

The almost seamless transfer across the Pacific Ocean of wildfires ravaging California in late fall to blazes engulfing eastern Australia in late spring has elevated the climate-change debate.

Australia is the world’s third-largest carbon polluter, but Prime Minister Scott Morrison has resisted adopting a wide-ranging emissions-abatement policy, and has rejected links between wildfires and global warming.

Economic Costs

The Reserve Bank of Australia has warned that hotter weather and wider temperature disparities could hurt labor productivity and output, and could influence the long-run neutral level of interest rates. Financial-stability risks also will come to the fore as insurers face increased payouts for damage claims and asset valuations change rapidly, the central bank says.

Indeed, Bank of England Governor Mark Carney has warned of a “Minsky Moment” in which a climate-related alarm could cause asset prices to collapse. Already, Sweden’s Riksbank has sold holdings of securities issued by Queensland and Western Australia -- major mining hubs -- because of the states’ high carbon-dioxide emissions.

The smog that has enveloped Sydney and Brisbane has caused chaotic scenes in central business districts as smoke triggers buildings’ fire alarms, forcing workers to evacuate offices and sending fire engines careering from one false alarm to another.

“There are countless ways that the fires and the smoke itself are impacting on business,” said Julie Toth, chief economist at the Australian Industry Group. “The disruptions are severe and multiple and have cascading effects.”

BLOOMBERG