Australia markets closed

    -83.90 (-1.04%)
  • ASX 200

    -84.20 (-1.08%)

    -0.0004 (-0.06%)
  • OIL

    -0.25 (-0.33%)
  • GOLD

    +3.00 (+0.13%)
  • Bitcoin AUD

    -4,235.64 (-4.01%)
  • CMC Crypto 200

    -16.56 (-1.13%)

    -0.0003 (-0.06%)

    -0.0005 (-0.05%)
  • NZX 50

    -26.09 (-0.22%)

    -81.82 (-0.44%)
  • FTSE

    -58.90 (-0.71%)
  • Dow Jones

    -605.78 (-1.53%)
  • DAX

    -140.60 (-0.75%)
  • Hang Seng

    -284.15 (-1.51%)
  • NIKKEI 225

    -457.11 (-1.17%)

Domino effect: How coronavirus will hit Australia

Coronavirus will have a cascading effect through Australia's economy. Image: Getty
Coronavirus will have a cascading effect through Australia's economy. Image: Getty

The coronavirus death toll surged past that of the SARS crisis this week.

And should its economic impact be worse than the 2003 virus, it will also hit the Australian economy and property market.

So how concerned should we be?

The answer comes down to time and severity. Naturally, if the coronavirus spreads rapidly across Australia, that’s a worry.

But the more likely risk is that a sustained blow to China’s economy hits Australia where it hurts: tourism, exports and the education sector.

A major Chinese slowdown could wipe out 550,000 Aussie jobs

Sydney Town Hall in the background,Sydney,New South Wales, Australia.
Australian jobs are at risk if China's economy slows significantly. Image: Getty

If China suffered a sudden and severe economic downturn, Australia’s economy could take a $140 billion hit with 550,000 jobs lost, according to a PricewaterhouseCoopers (PWC) report published in August last year.


“The People’s Republic of China [PRC] is the country’s largest trading partner, accounting for nearly a third of all exports,” PWC chief economist Jeremy Thorpe said.

“While Australia has benefitted from the growth of the PRC economy, it also leaves us relatively more vulnerable in the event of a downturn. Thus, Australia will not be able to avoid economic disruption in the event of a PRC hard landing.”

That was based on a scenario where China’s growth fell from 6.5 per cent to under 3 per cent.

China’s GDP growth will slow to 0 per cent in the January 2020 quarter, investment banking advisory firm chairman Ed Hyman predicted last week.

Ratings agency S&P has also predicted coronavirus will push China’s GDP growth down to 5 per cent in 2020, with the majority of the impact felt in the first quarter.

The group had previously predicted GDP growth of 5.7 per cent.

"We expect the effect to be more drawn out than in SARS given the longer time to reach peak infections and the more vigorous policy response, especially travel restrictions, in this episode," said Shaun Roache, the Asia-Pacific chief economist for S&P Global Ratings.

Tourism, education on thin ice

Australian Prime Minister Scott Morrison, second right, Minister for Health Greg Hunt, left, Chief Medical Officer Professor Brendan Murphy, and Minister for Foreign Affairs Marise Payne, right, give an update on the coronavirus at a press conference at Parliament House in Canberra, Wednesday, Jan. 29, 2020. Australia and New Zealand will work together to evacuate their isolated and vulnerable citizens from China's virus-hit Hubei province. (Mick Tsikas/AAP Image via AP)
Australian Prime Minister Scott Morrison has announced foreign nationals who have recently travelled to mainland China will be barred entry to Australia. (Mick Tsikas/AAP Image via AP)

Chinese tourists and students make up around 15-16 per cent of visitors to Australia and also spend significantly more than any other tourists when they’re here.

Prime Minister Scott Morrison in late January announced foreign nationals travelling from mainland China would be barred from Australia.

The travel ban puts a question mark next to the $12 billion brought in by those 1.4 million annual Chinese visitors. According to the Department of Foreign Affairs and Trade, there were eight times as many Chinese visitors to Australia in 2018 than there during the SARS outbreak in 2003.

Australia’s education sector will also take a big hit.

The nation’s international education sector contributed $34 billion to the domestic economy, according to the education minister, Dan Tehan.

Australia’s universities rely on a “flood of international student money - Chinese money in particular”. In fact, across Australia, more than one-in-four students are foreign. And at five major universities, more than 30 per cent are from China.

“At these levels of exposure, even small percentage declines in Chinese student numbers could induce significant financial hardship as universities struggle to meet the fixed costs of infrastructure and permanent staff salaries in the midst of a revenue shortfall,” adjunct fellow Salvatore Babones said.

Babones noted that a slowdown in Chinese growth could also trigger a sharp drop in student numbers.

Around 100,000 Chinese students have been unable to return to classes in Australia due to the travel ban.

Australian exports

Silhouette of a bucket wheel reclaimer at an iron ore mine
China is Australia's biggest iron ore market. Image: Getty

Australian exports also face big questions, with the wine industry and shellfish industry already reeling from plummeting demand.

Then there’s iron ore.

If China’s economy slows, so too does demand for Australia’s biggest Chinese export - iron ore. Australia exported $51.4 billion worth of iron ore to China in 2018, with China taking more than 80 per cent of Australia’s shipments.

The price of iron ore fell by more than 10 per cent in the last month.

Escalating risks

Gente con mascarillas de protección en una esquina en una calle de Hong Kong, el domingo 9 de febrero de 2020. (AP Foto/Vincent Yu)
Risks of spread pose major questions for Australia. Image: Getty

As these risks scale up, so too does the risk for Australia’s economy.

The business world is aware of those risks: Westpac on Tuesday announced a suite of coronavirus support measures for businesses.

Businesses with Westpac will be able to extend loan terms by up to three months and access business counselling and deferred payments for business credit cards.

The impacts of the outbreak are being felt across a varied group of industries, Westpac’s business division chief executive Guil Lima said.

“This is an extremely difficult period for some Australian businesses,” Lima said, noting there were few signs the virus’ spread was slowing.

However, there is good news.

Australia’s jobs figures are improving, with the jobless rate declining to 5.1 per cent in December, after climbing to a 12 month high in August.

But the Reserve Bank Governor Philip Lowe is watching the unemployment rate, observing the potential coronavirus threat.

“The outbreak of the coronavirus represents a new source of uncertainty,” Lowe said.

“Much will depend on the success of the various efforts to control the virus.”

Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.