Drought's Impact on Australia's Macroeconomic Equilibrium & Policy

This essay examines the impact of drought on macroeconomic equilibrium in Australia, employing economic principles and theories to analyze the health of the economy and the need for government intervention. It utilizes diagrams and media reports to illustrate the effects of drought on agriculture, energy production, and water supply, further extending to non-agricultural sectors. The analysis shows that droughts can significantly affect agricultural yields, retail food prices, and overall GDP, leading to declines in rural exports, farm income, and agricultural employment. Government policy responses, such as infrastructure projects and drought support packages, are discussed as potential modifiers of the macroeconomic impact. The essay concludes that droughts pose a significant threat to Australia's economy, emphasizing the importance of proactive measures to mitigate their effects. Desklib provides access to this essay and many other resources for students.

Running head: ECONOMICS
Economics
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Table of Contents
Introduction................................................................................................................................3
Analysis......................................................................................................................................4
Impact of drought on economic growth.................................................................................4
Nonagricultural sectors..........................................................................................................6
conclusion..................................................................................................................................9
Reference list............................................................................................................................11

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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.
Figure 1Drought affecting GDP in Australia

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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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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.
Figure 2Agricultural production in Australia

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Nonagricultural sectors

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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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coming years.
Figure 3drought 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.

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Figure 4Drought 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

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of Australia also known to have provided $272 million over the past years which will be
extended to the concessional loans.
Figure 5Inflation 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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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.

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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.