Drought and the Australian Economy-

Essay by bikeboyHigh School, 11th gradeA, July 2004

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Drought and the Australian Economy-2002/03


Australia's economic performance was mixed during the drought. Some parts of the economy expanded due to the competitive Australian dollar and other parts where effected due to the severe drought and other world issues including; SARS, terrorism uncertainties and tourism down turn.

The following are some negative and positive effects on the Australian economy during the recent drought period.

Negative Effects

Grain production was reduced by 40% compared to 2002 because much of eastern Australia was effected by severe drought conditions e.g. mainly NSW, Northern Victoria and the Murray Valley in South Australia.

Reduced farm income has effected spending on farm investment like tractors, harvesters and spending in country towns when families go shopping.

Living standards fell in country areas due to reduced farm income.

Some food prices increased like bread, pasta, biscuits and meat. Some supermarket products where unavailable or difficult to get.

Water allocation was reduced for cropping, irrigation and water restrictions occurred in some cities and towns. Also the health of the countries rivers declined due to reduced water flow and rising salinity.

A lot of recent gains in improved commodity prices will be lost due to reduced farm production.

The drought cost to the economy about 0.5% in growth, with a production loss of around $4 Billion. This is like if the Australian economy stopped for seven or eight weeks.

Net exports subtracted 3.1% from the gross domestic product, partly due to the strong Australian dollar that rose about 16% against the United States dollar. The current account deficit increased from 3.1% in 2001/02 to 5.6% in 2002 of gross domestic product.

In November 2003 the Reserve bank raised interest rates partly due to concerns about domestic credit growth mainly in the housing market.

Positive or Neutral Effects

The overall...