Fires and virus could drive nation into recession

Fires and virus could drive nation into recession

Consumer confidence has also edged down with pessimists now easily out-numbering optimists, while a special international Roy Morgan survey this week found 40 per cent of Australians expect 2020 to be worse than 2019, one of the bleakest outcomes of 47 nations researched.


Many publicly listed companies exposed to China have already taken a hit. Shares in Webjet fell by 18.2 per cent this week, casino operator Star Entertainment lost 11 per cent, Qantas shares edged down by 3.7 per cent, while iron ore miner Fortescue Metals Group shed 9 per cent.

Housing Industry Association economist Julie Toth said the physical damage plus the hit to consumer spending wrought by the summer’s fires posed a real risk to Australia’s record 29-year run without a recession.

“The bushfire disaster presents the real and immediate possibility of two quarters of negative growth,” she said.

“Even if disaster relief and fiscal stimulus are delivered swiftly, resource constraints and regulatory requirements mean reconstruction will be very slow. This will act as a brake on activity, output and exports from rural resources, regional industries and regional tourism throughout 2020.”

The Reserve Bank board meets on Tuesday with markets putting the chance of an interest rate cut at little more than one in 10.

Bushfires could wipe up to 0.5 per cent from growth over the next few months, economists have warned.Credit:AAP

AMP Capital chief economist Shane Oliver said the board would talk about the potential impact of the coronavirus outbreak and bushfires on global and Australian growth.

“This will impact airlines, hotels, tour bus operators, retailing, etc. Retailing is also likely to be impacted if the virus significantly affects confidence and people decide to stay at home to avoid the virus,” he said.

NAB chief economist Alan Oster said the fires would knock economic growth by 0.4 per cent in the March quarter and possibly double that over a six-month period. That would put the total cost at more than $15 billion.

ANZ economists Hayden Dimes and David Plank said the coronavirus would likely reduce economic growth this year by 0.2 per cent with most of the damage in the first six months of 2020.

The tourism sector would feel the brunt of the virus impact although it would be offset to some extent by a drop in the Australian dollar and fewer people heading overseas for holidays.

“Overall a significant hit, but not enough to derail the economy given supportive interest rates and low Australian dollar,” they said.

But they cautioned if the virus spread then the federal government may have to spend more of its planned $5 billion budget surplus to support the economy.

“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.”

Curtin University economist Rebecca Cassells said the fires and coronavirus would “put a big hole” in the number of Chinese tourists to Australia. Last year 1.4 million visitors from China spent almost $12 billion.

She said the fires alone would cost the economy several billion dollars, noting they would affect the country in unusual ways.

“We only have to look to the constant smoke haze that our capital cities have been shrouded in over the last couple of months to see how this has changed the behaviour of people,” she said.

“People are staying home, staying indoors and being told not to go to work. This means that they’re less likely to be spending and less likely to be producing.”


University of Western Australia economist Jakob Madsen believes the overall impact of the fires will be shortlived with a hit to GDP in coming months before rebuilding of affected areas boost growth through the second half of 2020.

But he cautioned the tourist sector could suffer for longer due to the way the federal government’s climate policies were highlighted in international coverage of the fires.

“There is a chance that the tourist industry will be damaged for many years because the fires have put Australia in the international spotlight as being indifferent to global warming. Tourism is political (and) the same applies to exports of education and goods,” he said.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

Jennifer Duke is a media and telecommunications journalist for The Sydney Morning Herald and The Age.

Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra

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