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Could coronavirus tip Australia into a recession? Here’s what 5 experts said

Shop assistants in luxury outlets in Sydney's CBD are seen wearing masks on January 31, 2020 in Sydney, Australia. (Photo by Jenny Evans/Getty Images)
Shop assistants in luxury outlets in Sydney's CBD are seen wearing masks on January 31, 2020 in Sydney, Australia. (Photo by Jenny Evans/Getty Images)

When it comes to economic growth, Australia looks like the picture of perfect health: with nearly three decades with a recession, Australia holds the record for the longest uninterrupted period of GDP growth.

But for a while now, we’ve been showing multiple symptoms of illness, including slow wage growth, a national property downturn, and low inflation. meaning the Australian economy was already weak before the bushfires and coronavirus hit the system.

To date, the Wuhan coronavirus – or ‘COVID-19’ – has killed 2,247 people and infected 76,206 people around the world.

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But it’s also taken a major bite out of the global economy: as workplaces, manufacturing sites and retail stores shut down, employees are forced to work from home and business activity has slowed significantly. Oxford Economics are estimating that, in the worst case scenario, the world economy would lose up to $1 trillion, and the US and Europe could fall into recession.

With our economy so closely tied to China’s, how will Australia’s economy fare with the latest shock to the system?

Yahoo Finance asked some of Australia’s best economists, and whether there was any worrying statistic or figure we should keep an eye on. Here’s what they said.

Recession not expected: Felicity Emmett, Senior Economist, ANZ Research

At this stage we’re not expecting the Australian economy to tip into recession. The experience with SARS in 2002 suggests that when the travel ban is lifted and flights from China into Australia recommence tourism is likely to recover quickly and strongly. We currently assume that tourism numbers start to recover from April onwards.

If the virus continues for longer than we expect the impact is likely to be larger and longer, both due to the direct impact on tourism and the broader impact of lower growth in the region.

We think that the impact of the coronavirus will be to take around 0.5 per cent off Australia’s GDP in Q1.

There is clearly a very wide range of uncertainties around the outlook: the virus’ timeline, the behaviour of non-China tourism, the impact on broader Chinese and global growth from disrupted supply chains, and the degree to which Australians limit their travel abroad. The risks to growth look to be tilted to the downside.

‘Possible, but not probable’: Shane Oliver, chief economist, AMP Capital

The answer is that coronavirus could possibly cause a recession, but it's not probable. The virus outbreak will cause a big hit to the Australian economy with the exposure to tourism, education and resources exports.

However, this drag is likely to be concentrated in the March quarter, but if as we expect the outbreak is contained in the next month or so growth should rebound in the June quarter.

Signs that the number of new cases may have peaked is a positive sign in this regard albeit even if they have peaked it will be a while before the Chinese economy gets back to normal and likewise for trade and tourist flows. But the SARS experience tells us that things bounce back pretty quick once the all clear is given and extra policy stimulus – notably in China – will aid in this.

Keep an eye on...

The daily number of new Covid-19 cases, real time indicators of Chinese activity including in relation to traffic volumes, and coal demand.

‘Temporary and concentrated’: Stephen Koukoulas, independent economist

The coronavirus is unlikely to spark a recession – its impact is likely to be temporary and very concentrated on specific sectors of the economy.

That said the economy is still sluggish which means the near term data flow are likely to be weak – witness the January labour force data which showed a poor performance in the labour market as 2020 kicked off.

Of course, if the coronavirus lasts into the second half of the year and/or intensifies, growth will be impacted.

‘Head up in the sand’: Jessica Amir, market analyst, Bell Direct

For us and the rest of the world – China has never been more important. It now makes up 35 per cent of global growth, up from 4.2 per cent that it contributed in 2002.

So you would have to have your head in the sand if you thought our GDP wouldn’t take a coronavirus hit, along with the US economy. But we know, and in fact, some of the largest companies on the ASX are saying the coronavirus effect should only have a temporary effect.

Keep an eye on...

All eyes will be on the first quarter GDP read, which is due in April. But as markets are forward looking, markets will already be factoring on reduced GDP, particularly as it was in black and white for everyone to read in the RBA minutes: “the effects of the coronavirus outbreak were also expected to subtract from growth in exports over the first half of 2020”.

But as to the extent that corona will shave off GDP – that’s what we don’t know.

‘Not destroyed, just deferred’: Kerry Craig, global market strategist, JP Morgan Asset Management

The coronavirus will have an impact on Australian economic growth but is unlikely to create a recession. Episodes like the coronavirus disrupt economic activity mainly through a drop in demand. In the Australian instance case this drop in demand is from a lower number of Chinese visitors for tourism and educational purposes.

However, demand is not destroyed; just deferred. When the peak of the fears about the coronavirus passes money will start to be spent again and all the deferred demand or pent up demand will boost growth. Sharp economic slowdowns are often met with a sharp upswing and unlikely to persist for a full two quarters, and for a recession to occur there needs to be two consecutive quarters of negative quarter-on-quarter growth.

There is a risk that the spread of coronavirus takes longer to be contained and if that were the case then the impact could last longer, but not necessarily be any more severe in terms of damaging economic activity in Australia.

Keep an eye on...

The number of new cases announced each day. From a market perspective, the number of new cases doesn’t have to fall for markets to be comfortable that the worst may have past, just increase at a slower rate.

Note: Some comments have been edited for brevity.

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