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Market crash poses biggest risk to Australian GDP

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A financial market crash could place almost half of Australia’s economic output at risk, making it the single largest threat to the economy, Lloyd’s says.

A market crash could have a $US3.6 billion ($4.7 billion) cost across the major cities, while cyber attack ranks as the second-largest threat, endangering $US1.3 billion ($1.7 billion) of economic output, according to the Lloyd’s City Risk Index.

The study examines GDP at risk in 279 cities considered economic growth engines, including Sydney, Melbourne, Perth, Brisbane, Adelaide and Canberra. It ranks 22 separate threats.

Other dangers for Australia include human pandemic, flood, drought, temperate windstorm, power outage, solar storm and plant epidemic. Man-made threats account for 69% of the risk to GDP.

“While we often worry about natural disasters, owing to their devastating effects, more attention must be paid to rising man-made threats,” Lloyd’s Australia Country Manager Chris Mackinnon said.

“As Australia’s economy expands and our digital infrastructure becomes more complex, the threat of a market crash or major cyber attack grows.”

A market crash is also the biggest threat to GDP in Auckland and Wellington, putting a combined $US320 million ($418 million) at risk.

For Auckland, flood is the second-biggest risk, followed by volcano. In Wellington the second-ranked threat is earthquake, followed by flood.

Cyber attack, human pandemic, commodity price shock, temperate windstorm, power outage and solar storm are other major risks for New Zealand.

Overall, the 279 indexed cities risk losing an average of $US546.5 billion ($715 billion) a year in economic output from all 22 threats.

“We have created this unique index to help cities around the world identify, understand and quantify their exposure to risk, which will help them prioritise investments and build resilience,” Lloyd’s Chairman Bruce Carnegie-Brown said.

The index also flags rising geopolitical risk, driven by the threat of international conflict and civil unrest.

The index was developed with the Cambridge Centre for Risk Studies.