Commenting on the ongoing major drought fiasco in Australia, Philip Lowe, Reserve Bank Governor revealed that it would have a “significant” effect on the food prices and the economy too.
It has been quite some time now that Farmers have been constantly tackling drought with the worst effects seen in northern Victoria, southern Queensland and NSW.
A new report released by Commonwealth Bank has predicted an estimated cost of $12 billion and also warning of food price hikes.
In a parliament hearing on Friday (August 17th), Reserve Bank Governor Philip Lowe went on to say that the drought is so disastrous that the RBA board had to look at rainfall charts at its previous meeting, something that hasn’t been done for a long time.
When questioned about the outcome, Dr Lowe went on to say: “It mostly depends on the scenario one paints for rainfall.”
He further added, “If things could return back to normal within a fair time we can expect a rebound, however, if it continues to go on like it did during the drought at the turn of the century then it would have a really deep impact on the economy.”
Dr Lowe then said that back in 2002/03 farm output dropped by nearly 25 per cent knocking a full percentage point off Australia’s growth which in turn led to many rural workers facing unemployment.
Also, there was a 4.5 per cent rise in food prices, as slaughter rates increased as the effects of droughts were felt.
Dr Lowe then added, “The current drought is nowhere close to being as serious as that one and we all certainly hope it won’t be.”
However, experts have predicted that in the short run, rural exports could rise as meat production continues to increase, however the same cannot be said for the agricultural sector which accounts for nearly 15 per cent of total exports.
The Commonwealth Bank released a recent report which suggests that the current drought can possibly cut GDP growth by between 0.5% and 0.75% of GDP – (between $8 billion and $12.5 billion).
However, Chief economist Michael Blythe predicts that the Australian economy will most likely show a good result overall regardless of the current drought “taking the edge” off total growth.