Analysts at ANZ Bank explained that overall they assess that Australia’s GDP could be around 0.2% lower in 2020 as a consequence of the coronavirus, with most of this being felt in Q1 and Q2.
Additionally, the analysts explained that “would add to the downside risks to growth in the first half of 2020 stemming from the bushfires, though the overall impact from 2020 is not additive given the post fire rebuild will boost activity somewhat in H2-2020. Overall a significant hit, but not enough to derail the economy, given supportive interest rates and low AUD.”
This will be an overestimate if the virus is rapidly contained and an underestimate if its severity increases dramatically.
The most direct impact on the Australian economy will be fewer international visitors from China.
This will be material, as China now accounts for almost 16% of international visitors and 27% of total visitor expenditure.
There will be some offsets for the overall impact on GDP, not least in fewer Australians travelling overseas.
A lower AUD may also result, with positive implications for net exports. At the same time spending by locals may fall, in the worst case, if Australians are deterred from venturing out.
We think if the situation worsens materially, it would be appropriate for fiscal support, given the current economic environment of only moderate growth and a cash rate that is already close to the effective lower bound.