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Australia to see negative growth

Lachlan Maddock
— 1 minute read

Australia will likely see a quarter of negative growth as the coronavirus weighs on tourism, education, and demand for raw materials overseas – and that’s the good news.

With deaths in Wuhan now rising above 500, and Australia’s borders still closed to Chinese tourists and international students, it now seems inevitable that the coronavirus will hit economic growth. 

“Australian growth could see a 0.2 per cent hit in the current quarter mainly due to the loss of Chinese tourists (which account for 20 per cent of tourism earnings and 0.2 per cent of GDP) but also lower raw material demand and an impact on confidence,” said AMP chief economist Shane Oliver.

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That, combined with the impacts of the bushfire emergency, could see GDP growth contract. However, if new cases of the coronavirus started to peak in the next month or so, travel restrictions could be removed, leading to a rebound in the June quarter. 

But if the number of cases continues to escalate beyond China and aren’t contained until the mid-year, the situation could quickly become much worse. 

“This scenario would see a bigger and longer negative impact on economic activity,” Mr Oliver said.

“Global travel would collapse. Many would simply not come into work – a reasonable estimate is around 20 per cent of workers, although this might be spread over time. This would see a sharp slump in global GDP and the risk of global recession. Australia would not be immune and would likely see two negative quarters of growth with flow-on to education exports to China (which account for another 0.6 per cent of Australian GDP).”

However, China has been quick to contain and quarantine the virus and the worst case scenario may not come to pass. 

“While there is reason for concern and it is easy to dream up nightmare scenarios, the experience with SARS, bird flu (with “predictions” it could kill as many as 150 million people) and the mini panic regarding swine flu and Ebola tell us that the worst case fears of pandemics usually don’t come to pass,” Mr Oliver wrote. 

“Our base case scenario (with 75 per cent probability) is one of containment over the next month or two. This could still see more downside in share markets and bond yields in the near term, but they are likely to rebound by the June quarter as economic growth rebounds.”

 

Australia to see negative growth
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