Droughts or flooding rains: the economy, sport and BBQs

From Challenger Chief Economist Dr Jonathan Kearns

Australia has long been a country of droughts and flooding rains, but climate extremes are increasing with climate change, affecting both the economy and our way of life. A frequently used indicator of rainfall trends in Australia is the Southern Oscillation Index (SOI) which measures the surface air pressure difference between Darwin and Tahiti. Sustained values above +7 are a sign of La Niña and increased rain across much of Australia, particularly the east coast and top end. Sustained values below ‑7 are a sign of El Niño and low rainfall.

Because the SOI correlates with rainfall, it also influences farm output, and for this reason has even been used by the RBA in a model of the Australian economy and research ranging from business cycles to Philips curves. Farm output used to be quite important for the Australian economy, comprising 15% of GDP back in the 1960s. But agricultural output growth hasn’t kept up with the expansion of the rest of the economy, and since 1990 farm output has only accounted for around 2.5% of total GDP.

The SOI is only indicative of rainfall patterns, and does not influence rainfall in the west of Australia. Despite the SOI being negative for most of this year (but not low enough to be in drought predictive El Niño territory) average rainfall in all of Australia this year has actually been high relative to recent years.

Of course when the rain falls in a wet year impacts our day-to-day lives. If you live in Sydney and feel the rain this winter always came on weekends, you’re right. This winter, average rainfall on Friday, Saturday and Sunday in Sydney has been two to three times the historical average. There was a lot of cancelled school sport. 

Canberra also had slightly higher average weekend rain, but elsewhere around Australia, weekends weren’t too soggy. The BoM has indicated the SOI is currently in neutral range and is expected to remain there over the summer. Hopefully that means a better outlook for weekend BBQs.