Guy Debelle: Climate change and the economy

Remarks by Mr Guy Debelle, Deputy Governor of the Reserve Bank of Australia, at a Public Forum hosted by the Centre for Policy Development, Sydney, 12 March 2019.

Central bank speech  | 
13 March 2019

'I love a sunburnt country, a land of sweeping plains, of ragged mountain ranges, of droughts and flooding rains.'

As Dorothea Mackellar eloquently put it in 1908, the weather has always had a significant impact on the Australian economy. One example that I recall vividly from my primary school days in Adelaide is the Goyder Line. Goyder was the Surveyor-General of the colony of South Australia in the second half of the 19th century. In 1865, he rode across the colony to determine what part of the state was arable. He plotted the Goyder line, or the 10-inch rainfall line. Areas to the south of the line were arable, those to the north were not. In the years just after Goyder drew his line, there was a period of high rainfall. Farmers pushed north of the Goyder line, building farmhouses and planting crops. But then, normal rainfall returned and Goyder's line reasserted itself. The legacy of that is still evident today with the ruined farmhouses.

Droughts and floods have had a large effect on the Australian economy for many, many years. In the 1990s, the model of the Australian economy at the Reserve Bank developed by David Gruen and Geoff Shuetrim had the Southern Oscillation Index as a significant determinant of GDP in Australia. Today, while agriculture is a much smaller share of the economy than it used to be, the effect of climate on that sector is still evident in aggregate GDP. The current drought has already reduced farm output by around 6 per cent and total GDP by about 0.15 per cent. Even assuming that rainfall returns towards average soon, the drought will continue to weigh on aggregate GDP during 2019.