1 00:00:03,960 --> 00:00:06,990 Jennifer Duke: Welcome to the Fear and Greed Business Interview. I'm Jennifer 2 00:00:06,990 --> 00:00:10,799 Jennifer Duke: Duke. Last month, the Bureau of Meteorology made it official 3 00:00:10,800 --> 00:00:13,319 Jennifer Duke: we're in an El Nino weather pattern. It means a 4 00:00:13,320 --> 00:00:17,250 Jennifer Duke: hot dry summer with, unfortunately, an increased risk of drought 5 00:00:17,250 --> 00:00:20,550 Jennifer Duke: and bushfires. And that left me thinking about the economic 6 00:00:20,550 --> 00:00:23,130 Jennifer Duke: impact of El Nino, and beyond that as well to 7 00:00:23,130 --> 00:00:26,669 Jennifer Duke: the economic impact of other weather events, including natural disasters 8 00:00:26,910 --> 00:00:29,429 Jennifer Duke: and what this tells us about our economy during climate 9 00:00:29,429 --> 00:00:33,449 Jennifer Duke: change. Cherelle Murphy is EY's chief economist for Oceania. Cherelle, 10 00:00:33,450 --> 00:00:34,559 Jennifer Duke: welcome back to Fear and Greed. 11 00:00:35,070 --> 00:00:36,120 Cherelle Murphy: Thank you for having me, Jen. 12 00:00:36,720 --> 00:00:38,310 Jennifer Duke: So I'd actually like you to start us right at 13 00:00:38,310 --> 00:00:41,339 Jennifer Duke: the basics. How does weather tend to impact the economy 14 00:00:41,340 --> 00:00:44,190 Jennifer Duke: generally, and what might a pattern like El Nino mean 15 00:00:44,190 --> 00:00:45,120 Jennifer Duke: for us right now? 16 00:00:46,889 --> 00:00:50,159 Cherelle Murphy: Well, certainly the weather can impact many sectors of the 17 00:00:50,159 --> 00:00:53,190 Cherelle Murphy: economy. In fact, there's few sectors that are not affected 18 00:00:53,190 --> 00:00:56,820 Cherelle Murphy: by extreme weather. First of all, we think about the 19 00:00:56,820 --> 00:01:00,360 Cherelle Murphy: fact that all industries need power. And if in this 20 00:01:00,360 --> 00:01:04,860 Cherelle Murphy: particular El Nino situation, we have particularly high temperatures which 21 00:01:04,860 --> 00:01:08,130 Cherelle Murphy: push up the demand for electricity, that strong demand can 22 00:01:08,130 --> 00:01:11,399 Cherelle Murphy: often coincide with supply blockages, if there are things like 23 00:01:11,400 --> 00:01:14,700 Cherelle Murphy: power outages or equipment failures. And we saw that, of course, 24 00:01:14,700 --> 00:01:17,850 Cherelle Murphy: during the Black Summer of 2019. So if you don't 25 00:01:17,850 --> 00:01:21,659 Cherelle Murphy: have power, obviously you're impacting the economy across the board. 26 00:01:22,500 --> 00:01:25,860 Cherelle Murphy: When it gets really extreme, you can see damage to 27 00:01:25,860 --> 00:01:29,399 Cherelle Murphy: infrastructure. And again, unfortunately living in Australia, we've seen lots 28 00:01:29,400 --> 00:01:32,370 Cherelle Murphy: of that. And so you've got repair and recovery costs. 29 00:01:32,370 --> 00:01:37,020 Cherelle Murphy: Insurance claims go up. Often, so do insurance premiums. Governments 30 00:01:37,020 --> 00:01:40,349 Cherelle Murphy: have to step in, state and commonwealth governments have to 31 00:01:40,349 --> 00:01:43,949 Cherelle Murphy: meet some of those repair costs. Companies can lose property, 32 00:01:44,069 --> 00:01:47,790 Cherelle Murphy: particularly if they're in bushfire zones. Households, clearly we see 33 00:01:48,000 --> 00:01:51,270 Cherelle Murphy: some houses being destroyed by this, which is just horrendous 34 00:01:51,270 --> 00:01:55,710 Cherelle Murphy: for some people. Agriculture, rainfall, if it's reduced, then it 35 00:01:55,740 --> 00:01:59,909 Cherelle Murphy: obviously affects crop yields and livestock production. And then the 36 00:01:59,910 --> 00:02:03,509 Cherelle Murphy: more, I guess, peripheral are the health sector. You think 37 00:02:03,509 --> 00:02:07,740 Cherelle Murphy: about heat related illnesses. If you've got vulnerable populations, that 38 00:02:07,740 --> 00:02:12,359 Cherelle Murphy: can affect the demand for healthcare, which would obviously lift 39 00:02:12,360 --> 00:02:16,200 Cherelle Murphy: the resources or put pressure on the resources of hospitals 40 00:02:16,200 --> 00:02:20,219 Cherelle Murphy: and healthcare facilities. And then there's the retail sector. Some 41 00:02:20,219 --> 00:02:21,719 Cherelle Murphy: of this can be good, some of it can be 42 00:02:21,719 --> 00:02:26,130 Cherelle Murphy: bad. You think about clothing sales, seasonal clothing sales can often 43 00:02:26,130 --> 00:02:28,919 Cherelle Murphy: go up in times of warm weather. And in fact, 44 00:02:29,100 --> 00:02:31,620 Cherelle Murphy: the ABS taught us last week that that had been 45 00:02:31,620 --> 00:02:35,340 Cherelle Murphy: part of the story for the August numbers. You might 46 00:02:35,340 --> 00:02:37,349 Cherelle Murphy: see higher ice cream sales, you might see higher air 47 00:02:37,349 --> 00:02:41,069 Cherelle Murphy: conditioning sales. But on the other hand, some retailers will 48 00:02:41,070 --> 00:02:45,600 Cherelle Murphy: suffer because, think about activities that are done outside, so 49 00:02:45,840 --> 00:02:48,840 Cherelle Murphy: thinking of, say, tennis. Might not be so attractive to 50 00:02:48,840 --> 00:02:52,139 Cherelle Murphy: play tennis when the weather is hot. So there's all 51 00:02:52,139 --> 00:02:55,200 Cherelle Murphy: sorts of impacts, and some of them are very obvious, 52 00:02:55,200 --> 00:02:56,639 Cherelle Murphy: but there's lots that kind of go on in the 53 00:02:56,639 --> 00:02:57,299 Cherelle Murphy: background too. 54 00:02:58,230 --> 00:02:59,788 Jennifer Duke: So if we're looking at this from a kind of 55 00:02:59,788 --> 00:03:02,610 Jennifer Duke: big picture perspective, what could it mean for inflation? Because 56 00:03:02,610 --> 00:03:05,220 Jennifer Duke: obviously that's something we're all very focused on at the moment. 57 00:03:05,639 --> 00:03:08,910 Cherelle Murphy: Yeah, it certainly can impact inflation in the sense that, 58 00:03:09,570 --> 00:03:12,000 Cherelle Murphy: essentially, what you might be looking at here is supply 59 00:03:12,000 --> 00:03:14,490 Cherelle Murphy: side constraints in the economy. So what you're doing is 60 00:03:14,669 --> 00:03:18,538 Cherelle Murphy: taking away some of the supply in the economy through 61 00:03:18,538 --> 00:03:21,840 Cherelle Murphy: the weather related damage or because resources have to be 62 00:03:21,840 --> 00:03:27,330 Cherelle Murphy: diverted to repair recovery, meeting the costs. So resources get 63 00:03:27,389 --> 00:03:31,530 Cherelle Murphy: used for that sort of climate related focus rather than 64 00:03:31,530 --> 00:03:34,230 Cherelle Murphy: for what they would normally be used for. So when 65 00:03:34,230 --> 00:03:38,070 Cherelle Murphy: we take away supply, we know that that can implicitly 66 00:03:38,070 --> 00:03:42,720 Cherelle Murphy: put up pressure on prices. And certainly, we've heard Michele 67 00:03:42,720 --> 00:03:45,510 Cherelle Murphy: Bullock, the governor of the Reserve Bank talk about that 68 00:03:45,510 --> 00:03:46,350 Cherelle Murphy: quite recently. 69 00:03:47,280 --> 00:03:49,800 Jennifer Duke: Definitely. And that speech that she gave, which is about 70 00:03:50,099 --> 00:03:53,549 Jennifer Duke: climate change and the impacts that it has on economic volatility, 71 00:03:53,549 --> 00:03:57,120 Jennifer Duke: was fascinating. I was curious about how difficult the impact 72 00:03:57,120 --> 00:04:00,030 Jennifer Duke: of climate change makes lives for economists, particularly when they're 73 00:04:00,030 --> 00:04:02,700 Jennifer Duke: forecasting. I'm assuming it gets an awful lot tougher for 74 00:04:02,700 --> 00:04:03,510 Jennifer Duke: you to do your job? 75 00:04:04,170 --> 00:04:07,650 Cherelle Murphy: Well, yeah, because you've got both cyclical factors happening here, 76 00:04:07,650 --> 00:04:10,469 Cherelle Murphy: or should I say short term factors? So maybe the 77 00:04:10,469 --> 00:04:14,340 Cherelle Murphy: weather and how that might impact a particular few months. But 78 00:04:14,340 --> 00:04:18,690 Cherelle Murphy: then there are the longer term factors and climate change 79 00:04:18,930 --> 00:04:23,370 Cherelle Murphy: is clearly making us all rethink what the growth potential 80 00:04:23,370 --> 00:04:27,599 Cherelle Murphy: and what the limitations of our economies are. We can't 81 00:04:27,599 --> 00:04:30,449 Cherelle Murphy: just continue to move forward at the pace that we 82 00:04:30,449 --> 00:04:33,570 Cherelle Murphy: have been without considering the climate. We're well down that 83 00:04:33,570 --> 00:04:37,140 Cherelle Murphy: path. That means the resources have to be devoted to 84 00:04:37,140 --> 00:04:41,370 Cherelle Murphy: managing climate change, whether that be from the government's side, 85 00:04:41,428 --> 00:04:44,160 Cherelle Murphy: where policy has to be put towards things. And we've 86 00:04:44,160 --> 00:04:46,770 Cherelle Murphy: seen some examples of that, such as the Disaster Ready 87 00:04:46,770 --> 00:04:49,620 Cherelle Murphy: Fund that the government's had to devote a billion dollars 88 00:04:49,620 --> 00:04:53,370 Cherelle Murphy: to. And then we've also got the private sector, which 89 00:04:53,370 --> 00:04:57,719 Cherelle Murphy: is clearly rethinking how it's managing its use of energy. 90 00:04:58,200 --> 00:05:02,730 Cherelle Murphy: How, for example, in the agricultural sector, what they're investing 91 00:05:02,730 --> 00:05:08,460 Cherelle Murphy: in, diversifying crops, thinking about water efficient farming techniques. The 92 00:05:08,460 --> 00:05:12,390 Cherelle Murphy: energy sector is thinking about the infrastructure that it uses 93 00:05:12,930 --> 00:05:16,229 Cherelle Murphy: and how it can be, I guess, upgraded to withstand 94 00:05:16,230 --> 00:05:20,250 Cherelle Murphy: extreme temperatures. And then there's the whole space of investing 95 00:05:20,250 --> 00:05:23,429 Cherelle Murphy: in the renewable energy sector, which of course is a 96 00:05:23,430 --> 00:05:27,659 Cherelle Murphy: huge area of growth for our economy. Lots of positives 97 00:05:27,660 --> 00:05:29,789 Cherelle Murphy: coming out of that too, by the way, certainly not 98 00:05:29,880 --> 00:05:33,480 Cherelle Murphy: negatives. So that we can reduce our reliance on the 99 00:05:33,480 --> 00:05:34,140 Cherelle Murphy: fossil fuels. 100 00:05:34,678 --> 00:05:36,690 Jennifer Duke: Stay with me Cherelle, we'll be back in a minute. 101 00:05:43,350 --> 00:05:48,839 Jennifer Duke: I'm speaking to Cherelle Murphy, EY Oceania chief economist. You mentioned before 102 00:05:48,839 --> 00:05:51,539 Jennifer Duke: about this change in, I guess, consumer behavior when we 103 00:05:51,540 --> 00:05:54,270 Jennifer Duke: have a really, really hot summer, say. You were sort 104 00:05:54,270 --> 00:05:56,070 Jennifer Duke: of mentioning the change in the clothing sales perhaps and 105 00:05:56,070 --> 00:05:58,500 Jennifer Duke: the way that people use energy. And I was curious 106 00:05:58,500 --> 00:06:01,050 Jennifer Duke: about maybe some of the longer term changes in behavior 107 00:06:01,050 --> 00:06:03,000 Jennifer Duke: that might happen as we go through more of an 108 00:06:03,000 --> 00:06:06,779 Jennifer Duke: unpredictable weather pattern. Is it possible that we might see 109 00:06:06,779 --> 00:06:08,938 Jennifer Duke: people be more generally risk averse, I suppose, in their 110 00:06:08,940 --> 00:06:10,979 Jennifer Duke: business operations, or do you have any thoughts around the 111 00:06:10,980 --> 00:06:13,380 Jennifer Duke: ways that consumer behaviors might change more permanently? 112 00:06:14,759 --> 00:06:17,639 Cherelle Murphy: Yeah, certainly. When you think about... I always think that 113 00:06:17,820 --> 00:06:21,330 Cherelle Murphy: the ski fields are an obvious example. So we didn't 114 00:06:21,330 --> 00:06:24,840 Cherelle Murphy: see a particularly good winter this year for the skiers. 115 00:06:25,200 --> 00:06:29,008 Cherelle Murphy: And that may mean that that segment in Australia becomes 116 00:06:29,010 --> 00:06:32,250 Cherelle Murphy: under genuine long- term pressure. All you need is a 117 00:06:32,250 --> 00:06:34,619 Cherelle Murphy: few bad seasons for people to really change their mind 118 00:06:34,619 --> 00:06:37,560 Cherelle Murphy: about their habits in that area. Are they going to 119 00:06:37,560 --> 00:06:41,940 Cherelle Murphy: invest in their ski equipment? What weather we see definitely 120 00:06:41,940 --> 00:06:44,880 Cherelle Murphy: does change the way people think about where they're going 121 00:06:44,880 --> 00:06:47,760 Cherelle Murphy: to spend their money. So that's just one example, but 122 00:06:47,940 --> 00:06:52,619 Cherelle Murphy: there's several out there. And how we kind of furnish 123 00:06:52,619 --> 00:06:56,250 Cherelle Murphy: our homes, how we heat protect our homes, and how we 124 00:06:56,250 --> 00:07:00,000 Cherelle Murphy: think about our gardening, what plants do we put in 125 00:07:00,000 --> 00:07:03,150 Cherelle Murphy: our gardens? There's so many different implications here. 126 00:07:04,020 --> 00:07:05,609 Jennifer Duke: I think it's really... I was actually at a truffle 127 00:07:05,610 --> 00:07:07,380 Jennifer Duke: farm not long ago, and they were talking about how 128 00:07:07,380 --> 00:07:10,199 Jennifer Duke: just a few degrees change over the winter can affect 129 00:07:10,199 --> 00:07:13,830 Jennifer Duke: their entire crop production. And agriculture is so massive for 130 00:07:13,830 --> 00:07:16,710 Jennifer Duke: the Australian economy. Are you concerned about the impacts on 131 00:07:16,710 --> 00:07:18,150 Jennifer Duke: that sector in the longer term? 132 00:07:19,560 --> 00:07:23,070 Cherelle Murphy: Certainly. And the treasurer has recently told us that if 133 00:07:23,070 --> 00:07:28,439 Cherelle Murphy: we don't take action to manage our agricultural sector to 134 00:07:28,440 --> 00:07:33,780 Cherelle Murphy: plan for higher temperatures, then crop yields could be about 4% lower 135 00:07:33,780 --> 00:07:37,800 Cherelle Murphy: by 2063. Now, in dollar terms, he puts that at 136 00:07:37,800 --> 00:07:41,670 Cherelle Murphy: about $ 1. 8 billion of GDP in today's dollars. So 137 00:07:42,120 --> 00:07:44,759 Cherelle Murphy: I guess, it's a warning that we sort of can't 138 00:07:44,759 --> 00:07:47,609 Cherelle Murphy: stand still on this. We need to plan for a 139 00:07:47,609 --> 00:07:49,440 Cherelle Murphy: future that looks different and warmer. 140 00:07:50,400 --> 00:07:52,770 Jennifer Duke: And what about sectors like mining? Because it can be 141 00:07:52,770 --> 00:07:55,710 Jennifer Duke: a little harder to understand. I think for most people 142 00:07:55,710 --> 00:07:57,029 Jennifer Duke: who live on the east coast, it can be hard 143 00:07:57,030 --> 00:07:59,400 Jennifer Duke: to understand how the impact of weather might look like 144 00:07:59,400 --> 00:08:01,949 Jennifer Duke: for the sector of mining. Do you have any thoughts 145 00:08:01,950 --> 00:08:04,380 Jennifer Duke: on how they could be impacted over the future years? 146 00:08:05,820 --> 00:08:08,970 Cherelle Murphy: Well, two things. One, is the infrastructure that mining requires, 147 00:08:09,060 --> 00:08:12,810 Cherelle Murphy: so that can be very heavily and badly impacted by 148 00:08:12,810 --> 00:08:15,029 Cherelle Murphy: extreme weather events. We just have to look at some 149 00:08:15,030 --> 00:08:17,489 Cherelle Murphy: of the cyclones that have hit the northwest of the 150 00:08:17,490 --> 00:08:20,009 Cherelle Murphy: country and the fact that that can shut down entire 151 00:08:20,009 --> 00:08:23,549 Cherelle Murphy: operations for several days at a time, which costs miners 152 00:08:23,549 --> 00:08:26,520 Cherelle Murphy: quite a lot of money. That's one example, and a short- 153 00:08:26,520 --> 00:08:30,390 Cherelle Murphy: term example. But again, as we move towards renewable energy 154 00:08:30,390 --> 00:08:33,900 Cherelle Murphy: sources, then clearly it changes the global demand for the 155 00:08:33,900 --> 00:08:37,020 Cherelle Murphy: types of energy that we're using. So we've seen very 156 00:08:37,020 --> 00:08:40,500 Cherelle Murphy: clear examples of the change in sentiment away from those 157 00:08:40,500 --> 00:08:45,690 Cherelle Murphy: heavily fossil fuel sources of energy to the inputs into 158 00:08:45,690 --> 00:08:48,328 Cherelle Murphy: other sources of energy, which are on the renewable side. 159 00:08:48,540 --> 00:08:51,719 Cherelle Murphy: So hence things like lithium clearly have been in more 160 00:08:51,719 --> 00:08:55,078 Cherelle Murphy: demand. So we'll definitely see a shift there. And that's 161 00:08:55,080 --> 00:08:58,049 Cherelle Murphy: well underway. It's not something that's sort of in the 162 00:08:58,049 --> 00:08:59,100 Cherelle Murphy: future, it's happening now. 163 00:09:00,029 --> 00:09:02,550 Jennifer Duke: Definitely. We've been certainly seeing that with the lithium stocks 164 00:09:03,000 --> 00:09:04,050 Jennifer Duke: in recent weeks. 165 00:09:04,380 --> 00:09:05,400 Cherelle Murphy: Indeed, yes. 166 00:09:05,910 --> 00:09:10,469 Jennifer Duke: And obviously the Reserve Bank's meeting later on today, what 167 00:09:10,469 --> 00:09:12,089 Jennifer Duke: do you think they're going to do on rates? Any 168 00:09:12,090 --> 00:09:12,630 Jennifer Duke: hot tips? 169 00:09:12,900 --> 00:09:16,109 Cherelle Murphy: Well, they've clearly... the markets have been moving around quite 170 00:09:16,109 --> 00:09:19,770 Cherelle Murphy: a bit, haven't they? Because the market is more concerned 171 00:09:19,770 --> 00:09:23,640 Cherelle Murphy: about inflation risks again, than they were a month ago. 172 00:09:24,240 --> 00:09:28,650 Cherelle Murphy: There are reasons why that makes a lot of sense, 173 00:09:28,650 --> 00:09:32,399 Cherelle Murphy: because we've seen a big pickup in petrol prices. Now that 174 00:09:32,400 --> 00:09:35,820 Cherelle Murphy: in itself shouldn't concern the Reserve Bank too much because 175 00:09:35,820 --> 00:09:38,490 Cherelle Murphy: it tends to be temporary. But when it starts to 176 00:09:38,490 --> 00:09:42,240 Cherelle Murphy: feed into other inputs, and of course fuel is an 177 00:09:42,240 --> 00:09:46,228 Cherelle Murphy: important input into many production processes, then we do get 178 00:09:46,230 --> 00:09:48,090 Cherelle Murphy: worried about the fact that there are flow- on effects 179 00:09:48,090 --> 00:09:52,830 Cherelle Murphy: from that. Also, if it starts to impact inflationary expectations, 180 00:09:52,830 --> 00:09:56,880 Cherelle Murphy: so people start to think about those higher fuel prices 181 00:09:56,880 --> 00:09:59,429 Cherelle Murphy: being permanent, that can cause people to bid up prices 182 00:09:59,429 --> 00:10:03,510 Cherelle Murphy: and wages. So the RBA will be concerned about that. But 183 00:10:03,540 --> 00:10:06,480 Cherelle Murphy: I don't think yet that there is enough evidence for 184 00:10:06,480 --> 00:10:10,439 Cherelle Murphy: them to move on rates. I think mostly, so far 185 00:10:10,440 --> 00:10:14,550 Cherelle Murphy: so good on the inflation story, core inflation is continuing 186 00:10:14,550 --> 00:10:17,700 Cherelle Murphy: to come down. It's coming down roughly in line with 187 00:10:17,700 --> 00:10:20,520 Cherelle Murphy: the Reserve Bank's forecasts, and I think they'll sit pat 188 00:10:20,520 --> 00:10:23,549 Cherelle Murphy: for at least another month, perhaps much longer than that too. 189 00:10:24,420 --> 00:10:26,400 Jennifer Duke: I think we'll be biting our nails later this afternoon. 190 00:10:27,300 --> 00:10:27,600 Cherelle Murphy: Oh, yes. 191 00:10:28,080 --> 00:10:30,480 Jennifer Duke: Cherelle, thank you so much for talking to Fear and Greed. 192 00:10:30,990 --> 00:10:31,588 Cherelle Murphy: My pleasure. 193 00:10:31,589 --> 00:10:36,000 Jennifer Duke: And that was Cherelle Murphy, EY's chief economist for Oceania. This is 194 00:10:36,000 --> 00:10:38,730 Jennifer Duke: the Fear and Greed Business Interview. Join us every morning 195 00:10:38,730 --> 00:10:41,189 Jennifer Duke: for the full episode of Fear and Greed, Australia's best 196 00:10:41,190 --> 00:10:45,179 Jennifer Duke: business podcast. I'm Jennifer Duke, economics correspondent at Capital Brief. 197 00:10:45,210 --> 00:10:46,050 Jennifer Duke: Have a great day.