Impact of Drought on Macroeconomic Equilibrium in Australia
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Added on 2023/04/22
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This article discusses the impact of drought on macroeconomic equilibrium in Australia, including its effects on agriculture, non-agricultural sectors, and the economy as a whole. It also explores the measures taken by the government to mitigate the negative impacts of drought.
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Running head: ECONOMICS Economics Name of the student Name of the university Author note
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2ECONOMICS Table of Contents Introduction................................................................................................................................3 Analysis......................................................................................................................................4 Impact of drought on economic growth.................................................................................4 Nonagricultural sectors..........................................................................................................6 conclusion..................................................................................................................................9 Reference list............................................................................................................................11
3ECONOMICS Impact of drought on macroeconomic equilibrium in Australia. Introduction The branch of the economics that deals with the general economic largescale factors are termed as microeconomics, examples are national productivity, rate of unemployment and interest rates. The macroeconomic factors comprise of the economic output, inflation rate, unemployment, investments and savings. The factors of the macroeconomics and its performance are usually monitored by the business, consumers and the governments. Therefore, it can be said that the key macroeconomic variables will be the gross domestic product, unemployment rate, rate of interest and inflation. Measuring the economic output and monitoring the interest rate is some of the important factors of the macroeconomic variables. Yes there is a relation between the factors of macroeconomics like for example a high rate of interest will bring down inflation and also a recession means there will be unemployment in the economy. Figure1Drought affecting GDP in Australia
4ECONOMICS Analysis The climate of Australia is known to be vary a lot and therefore are also prone to droughts. They are known to affect the agricultural yields and can also contribute to spikes in retail prices of the food. Australia is subject to extreme climates and therefore droughts and flooding rains can be a common phenomenon. Droughts are termed to be the specific type of natural hazard. Impact of drought on economic growth The most affected part which results from droughts are caused on agriculture, energy production a d the water supply in public. The service activities along with the manufacturing sectors are also indirectly affected by the droughts. In the short-term droughts however does not affect the production capacity of the economy, however it does in the long term. Th farming sector of Australia is quite small in areas which can also get affected due to droughts. The total impact of drought on the employment of agriculture known to have subtracted to around one percentage point from the growth of employment. The overall effects are also known to be huge. The farm production which is the proportion of the total production is known to have declined over time as the economy of Australia is diverse in nature. With the onset of drought, the share of the gross domestic product of Australia known to have decreased around three percent. Because of the droughts the rural exports will also decline and the agricultural products will also go down. For this reason, the fall in the export of the grains known to have contributed the largest amount of decline in the total rural exports. The exports of sheepskins, meat and we wool will be declining as a result of
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5ECONOMICS drought. The real farm income along with the farm prices and the farm costs are known to fall down by more than fifty percent. With the huge level of drought, there had been an appreciation in the Australian dollar over the course of the year which have led to decline of the growth of the economy. There has been a huge impact on the agricultural employment which affected the economy wide growth of the employment. It has been estimated that mote than 100,00 jobs were lost in the agricultural employment as a result of drought. The employment was severely affected as a result of huge droughts in Australia. At the time of drought, the agricultural systems are known to suffer the most. There will be a loss of livestock and the growing crops are also known to get disrupted as a result drought. The decline in the productivity will be affecting both in rural Australia as well as in national economy. Droughts is also known to affect the natural ecosystems. Figure2Agricultural production in Australia
6ECONOMICS Nonagricultural sectors
7ECONOMICS Droughts are also known to heavily affect the nonagricultural sectors with its effects on the water supplies. According to the recent media article it has been found that the place in Australia specially the New South Wales along with Queensland and Victoria have been hit as a result of drought. There had been a persistent dry condition present in the past few months as a result of drought. In places like New South Wales more than eighty percent of the states have known to experience huge amount of rainfall deficiencies since the last decade. The above average temperatures of Australia had made the conditions in Australia worse. In many parts of the country there had been a serious rainfall deficiency with the above average temperatures leading to huge amount of drying with the reduction of sub soil moistures. The recent drought has been too dry and severe. The prices of the commodity have also begun to rise. The weather conditions started to worsen and are forecasted to be warm and the dry conditions are likely to takes place over the next few months. As a result of drought, the prices of commodities have also started soaring up. The prices of the cattle have been known to fall sharply as the rates of slaughter will be increasing where the prices of wheat are known to rise sharply. The volume of the rural exports has also gone down to more than fourteen percent over the years and the gross domestic product of the farm have declined to more than fifteen percent in the previous year. There will be further subtractions in the
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8ECONOMICS coming years. Figure3drought and wheat production of Australia The Reserve Bank of Australia known to have intervene as a result of droughts. There have been massive rainfall deficiencies in many parts of Queensland and also in parts of the northern New South Wales. The government of Australia have planned a budget of $35 million for the infrastructures projects in the drought affected areas.
9ECONOMICS Figure4Drought and wheat yields This particular measure will be funding for the various projects that will be offering the huge potential for stimulating the economy in the drought affected areas over the years. One of the major measures taken by the government is the drought support package of 4250 million for the drought specific loan schemes. An amount of $150 billion have been provided for the drought Concessional loans and an amount of $100 million have been provided for the Drought Recovery Concessional loans. The Drought Recovery Concessional loans have been provided to NSW and Queensland. The government also provides these types of loans for the farms although the DRCL is not available in the Northern Territory. The eligible criteria for the DCL and the DRCL includes that the financial impact takes place as a result of drought where there will be deficiency of rain fall for a long period of time. The loans will only be provided when the farm business will be having an ability for repayment of loans. The other measures include an extra $20 million which have been provided for the social as well as mental health services in the drought affected communities. The capital expenditure on the fodder storage are also known to be eligible for depreciation over the years. The government
10ECONOMICS of Australia also known to have provided $272 million over the past years which will be extended to the concessional loans. Figure5Inflation as a result of drought The research of the ANZ Research suggests that the gross domestic product of Australia will be falling in the year 2019 where it will be declining g to more than twenty five percent over the two years. The risks around the forecasts will remain significant. The farmers that are associated with the communities will feel the impact of drought on their incomes. After the sharp rise in the income of the agriculture there will be rise in the deposits in case of the Farm Management Deposit Scheme. This particular scheme will be allowing the farmer for making deposits of the pre-tax income in the years when the income will be high. The projections of drought in the future will be difficult to constraints. conclusion Most of the dry conditions will be taking place in case of southeast Australia. The rainfall projections in most of the parts of the continent will be more uncertain in nature. Rainfall will be more extreme in various areas where there will be fewer light rain days. The
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11ECONOMICS drought will be having a significant impact on the economy of Australia where it will be led to largest decline in employment on record in the agricultural sector. There will be a loss of livestock and the growing crops are also known to get disrupted as a result drought. The decline in the productivity will be affecting both in rural Australia as well as in national economy. Droughts will be affecting the natural ecosystems. The negative impact of the drought will be costing the sector around 100,000 jobs. Therefore, in order to conclude it can be said that droughts can affect the macroeconomic variables on a large scale leading to negative impacts.
12ECONOMICS Reference list Deo, R. C., Kisi, O., & Singh, V. P. (2017). Drought forecasting in eastern Australia using multivariate adaptive regression spline, least square support vector machine and M5Tree model.Atmospheric Research,184, 149-175.. Edwards, B., Gray, M., & Hunter, B. (2015). The impact of drought on mental health in rural and regional Australia.Social Indicators Research,121(1), 177-194. Gouveia, C. M., Trigo, R. M., Beguería, S., & Vicente-Serrano, S. M. (2017). Drought impacts on vegetation activity in the Mediterranean region: An assessment using remote sensing data and multi-scale drought indicators.Global and Planetary Change,151, 15-27. Kiem, A. S., Johnson, F., Westra, S., van Dijk, A., Evans, J. P., O’Donnell, A., ... & Jakob, D. (2016). Natural hazards in Australia: droughts.Climatic Change,139(1), 37-54. Lobell, D. B., Hammer, G. L., Chenu, K., Zheng, B., McLean, G., & Chapman, S. C. (2015). The shifting influence of drought and heat stress for crops in northeast Australia.Global change biology,21(11), 4115-4127. Mosley, L. M. (2015). Drought impacts on the water quality of freshwater systems; review and integration.Earth-Science Reviews,140, 203-214. Saft, M., Western, A. W., Zhang, L., Peel, M. C., & Potter, N. J. (2015). The influence of multiyear drought on the annual rainfall‐runoff relationship: An Australian perspective.Water Resources Research,51(4), 2444-2463.