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Australia braces for massive virus hit

Lachlan Maddock
— 1 minute read

The coronavirus outbreak will lead to at least two quarters of “well below-trend growth”, sufficient to trigger rising unemployment, with any recovery likely to be drawn out.

The impact of coronavirus on manufacturing and supply lines – as well as business confidence – could see the Asia Pacific thrown into a recession, according to S&P Global Ratings.

“An enormous first-quarter shock in China, shutdowns across the US and Europe, and local virus transmission [guarantee] a deep recession across Asia Pacific,” said S&P APAC chief economist Shaun Roache. 

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“Our estimate of permanent income losses is likely to at least double to more than US$400 billion. For credit markets, a key question is how these losses are distributed across sovereigns, firms, banks, and households.”

The timing of the recovery depends most of all on containing the spread of the virus – but even if major progress is made during the second quarter, many firms won’t be in a position to resume investing after a sustained period of cash flow stress. 

“The scars that may be left on balance sheets and in labour markets threaten a more drawn out U-shape recovery in Asia Pacific,” Mr Roache said. 

Westpac has also revised its forecast for 2020, signalling a deeper recession and higher unemployment, saying that the Morrison government’s stimulus package was unlikely to be enough to offset the economic shock to Australia. 

“Growth through 2020 is now estimated at 1.5 per cent with minus 1 per cent in the first half and 2.5 per cent in the second half,” Westpac chief economist Bill Evans said in a note. 

“The unemployment rate is now forecast to reach 7 per cent by October 2020 (up from the previous estimate of 5.8 per cent to 6.0 per cent) due to the larger negative shocks to the labour-intensive sectors such as recreation; tourism; education; renovations and additions; and dwelling construction.”

However, State Street Global Advisors believes talk of global recession is “premature”. 

“Undue panic and fear is the worst recipe in times like this,” said Amlan Roy, head of global macro policy research at State Street. 

“Balance is necessary. Coordinated central bank actions have not been considered effective by the market…Street talk of ‘global recession’ is confused, when based on stock market losses and volatility.”

 

Australia braces for massive virus hit
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