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Short, sharp shocks as coronavirus spreads

Lachlan Maddock
— 1 minute read

The coronavirus epidemic is likely to have a short-term impact on a number of industries as consumers take desperate measures to protect themselves from the invisible killer.

The coronavirus – or “nCoV-2019”, as it has been christened by the scientists who discovered it – is unlikely to be the next Black Death. But it will hit global tourism and travel hard as millions of Chinese citizens are now forced to stay home over the Lunar New Year, either due to a quarantine that now encompasses 56 million people or out of simple fear

The last time that Chinese tourism was so effectively curtailed was during the SARS outbreak of 2002-03 – but the global economy has changed significantly since then. 

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“While in 2003, only a handful of countries were affected by the decline in Chinese tourism, this might not be the case today,” JP Morgan wrote in their Geopolitical Flashpoints report. 

“Chinese tourists are now significant contributors to overall tourism-related revenue in several countries, including those in the region, Europe, and even parts of Africa such as Egypt.” 

That could hit Australia – already suffering from the ongoing bushfire emergency – particularly hard. According to Moody’s Analytics, travel recommendations at the time of the SARS outbreak led to a material decline in short-term visits to Australia during the first two quarters of 2003. At that time, travellers from China accounted for only 4 per cent of short-term inbound travellers. In 2019, they accounted for 15 per cent. 

“While the World Health Organisation (WHO) has to date not recommended any travel restrictions, if the effect on regional travel is similar to that during the SARS outbreak in 2003, passenger volumes between Asian destinations – particularly China – and Australia could be significantly affected over the next two to three quarters,” said Arnon Musiker, a Moody’s senior vice-president. 

“Any decline in passenger volumes would add to the challenging operating conditions facing Australian airports, including moderating passenger volumes due to lower arrivals from China, tepid consumer confidence and the impact of the bushfires on the peak holiday season.”  

Other areas that could suffer from a fall in Chinese tourism include Macau, where SJM Holdings reported a 30 per cent decrease in gamblers during the SARS outbreak. Indeed, Macau’s visitations dropped 61 per cent during the first three days of the Lunar New Year, with visitors from mainland China falling as much as 66 per cent, according to JP Morgan. 

However, nCoV-2019 and SARS are substantially different, with varying mortality rates and radically different responses from the government. SARS was allowed to rampage unchecked due to inadequacies in China’s control environment, while the coronavirus appears to have been efficiently and effectively contained by a rapid quarantine of impacted areas. 

That alone means that the impacts will likely be regional rather than global. 

“Given that the current situation appears to remain more under control than in 2003, we expect reactions to remain more muted, barring a drastic deterioration,” JP Morgan wrote. 

“A wider implication is whether the outbreak becomes a drag on the overall economies in the region. All that said, the outbreak remains something to monitor in the near term.”

 

Short, sharp shocks as coronavirus spreads
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