Friday, January 14, 2011

A Blow to the Australian Economy

Earlier this year the most devastating flood ever to hit Australia soaked 30,000 homes and businesses. In some places the water is up to 4 meters deep. Along with the destruction of the homes and businesses, the flood damaged the Great Barrier Reef, one of the most successful tourist attractions in Australia. The Industry will likely experience a $100 million loss. The tourism industry in Australia represents 3.9% of it's GDP. The $100 million in tourism is only minor compared to the loss of $10 billion (almost 1 percent of the GDP). This is a bigger impact than Hurricane Katrina in the US. The flood also brought mining to a complete halt in parts of Queensland. Australia is the number 2 exporter of gold and uranium so we can expect the price of gold to rise for a short time because of the increase in scarcity until the mines are repaired. Economist Stephen Walters predicts that since Australia is currently riding a resources boom driven by Asian demand it should be back on it's feet by the second half of 2011.
As a result there will be a decline in growth of Australia's economy because for the next few years alot of the capital that would normally be spent on expansion and improving efficiency will be spent on repairs and the land that used to contain buildings or crops will need alot of labor to be repaired.


Smith said...

How will the increase in gold prices due to the lack of Australian mining affect the world economy?

sarah said...

The increase in gold prices will affect the world economy greatly. Many countries buy gold for different things such as utility and using it as their own resource. If the price to buy gold from Australia goes up then the money that country spends on it will be an opportunity cost to something else. Such as buying gold from another country or just not buying gold for the amount of time the price has increased. If they decide not to buy it, then the customers who buy the gold from that country will go elsewhere to find their own utility. Which in turn, affects that country as well as Australia.