Australian economy suffers virus symptoms
ANZ Research has made a number of assumptions to arrive at its estimate, including:
- Tourist arrivals from China fall 85 per cent in February, reflecting the impact of the travel ban;
- spending from students from China falls 30 per cent in February (reports suggest more than 50 per cent of the entire student cohort currently remains outside Australia);
- tourism spending from non-China arrivals drops 8 per cent in February;
- education spending from non-China students remains unchanged; and
- the recovery begins in April.
Of course, some of these assumptions could prove incorrect.
Hard to quantify
Broader negative impacts are possible. Local consumer sentiment took a hit from the bushfires and virus news is keeping confidence levels low. Rising uncertainty about the impact of the virus is likely to test business confidence and there is the potential for investment plans to be delayed.
The broader economic impact from slower growth in the extended Asian region is difficult to quantify at this stage. ANZ Research’s early estimate of the impact on China is to drag first quarter GDP to 5 per cent year on year.
Many ports in China remain closed due to the extended Lunar New Year Holiday. This is affecting delivery of Australia’s exports and driving commodity prices lower. The iron ore price has dropped 14 per cent over the past two weeks.
Supply chains in the region are disrupted, with factories unable to continue production without key components from their China sources. Hyundai has shut down all its car factories in South Korea given a shortage of supplies from China. Other car manufacturers have warned they too may be forced to close.
ANZ Research expects the recovery to begin in April. Predictions around the virus progression clearly have a high degree of uncertainty but current forecasts from The Lancet show the virus peaking in intensity around April.
In this case the recovery may be delayed further; suggesting ANZ Research’s estimate of the impact is relatively conservative.
Felicity Emmett is a Senior Economist & David Plank is Head of Australian Economics at ANZ
This story was originally published on ANZ’s Institutional website.