The different ways coronavirus will affect Australia’s economy

The different ways coronavirus will affect Australia’s economy

Australian stocks appear to have recovered after days of bloodshed on global markets, but the coronavirus is still expected to hurt the economy.

The benchmark ASX 200 index closed 3 per cent up on Tuesday despite losing almost 4 per cent in the first 10 minutes of trading.

The gains were great news for investors who saw the value of their shares drop drastically on Monday following massive losses on Wall Street and the sudden onset of an oil price war.

Tweet from @CommSec

But a single positive day on the stockmarket doesn’t signal an end to the economic impact of the coronavirus. 

With the likelihood of a recession growing daily, here are the ways Australia will be hit by the coronavirus outbreak.

How will coronavirus affect manufacturers and shops?

When the coronavirus first began to surface in the Chinese city of Wuhan, authorities responded by placing affected people (and neighbourhoods) into lockdown.

That resulted in large swathes of China’s manufacturing industry shutting up shop for several weeks, which then impacted businesses that rely on the supply of those manufactured goods.

In Australia, as much as 60 per cent of materials used on building sites are imported from China, putting the construction sector at particular risk.

Citizens of Wuhan, in Hubei Province, faced strict quarantine rules. Photo: Getty

Even when it’s only a handful of the world’s manufacturing capability that’s affected, that’s a big loss for businesses, because the components those factories produce might be vital to producers of other goods.

“It’s a significant negative shock,” said BIS Oxford Economics’ chief economist Dr Sarah Hunter.

“In some sectors it can be the case that there are thousands of parts that make up the supply chain but the absence of a critical few means production grinds to a halt.”

Car manufacturers in South Korea have already cautioned that without certain parts made in Wuhan they won’t be able to keep making vehicles.

Cars are only one of a handful of products that will be affected, and retailers may not be able to source the products they normally sell as a result.

How will coronavirus affect consumers?

The inability for businesses to get the goods and services they need to sell to their customers is referred to as ‘supply-side shock’.

But many businesses also face a ‘demand-side shock’ – that is, when consumers are no longer willing or able to buy their goods and services.

Tourism is a great example of this.

With most consumers rightfully concerned about holidaying in areas affected by the disease, demand for flights and accommodation has fallen off a cliff.

Restaurants and event organisers are also suffering as Australians choose to stay indoors.

How will coronavirus affect superannuation?

Super funds typically have large portions of their members’ money invested in stock markets, but the recent losses shouldn’t be cause for panic.

Although the value of many Australians’ retirement savings has decreased in recent days, the long-term trend is for stocks to increase in value.

Barefoot Investor Scott Pape noted that the coronavirus, although devastating for people directly affected, is a short-term health crisis, not a long-term economic one.

“Should you be doing anything with your super? Yes,” Mr Pape said.

“But should it be in reaction to the coronavirus? No.”

Instead, this crisis should be seen as an opportunity for super members to review their risk tolerance settings.

Acting rashly in response to the stockmarket’s movements will only crystallise the losses they’ve already incurred.

And many super funds are already looking for ways they can use the coronavirus to make money for their members.

How will coronavirus affect Australian jobs?

Australia’s unemployment rate has been pretty flat at around 5.2 per cent for the past year, and currently sits only slightly higher at 5.3 per cent.

But the coronavirus’ impact on supply and demand will undoubtedly hurt the jobs market.

Callam Pickering, economist with job search site Indeed, told The New Daily almost every industry in Australia will face job losses. 

That’s because the damage caused to the supply side will mean businesses have fewer products to sell and won’t need as many staff to sell them.  

And, on the demand side, fewer people shopping or paying for professional services will mean less need for the people employed to provide those things.

Although at first glance those problems only seem to impact on businesses directly affected by coronavirus – tourism, education, exports etc. – the problem will soon spill over into other industries.

As people employed in industries directly affected by the virus lose their jobs, they’ll stop spending money at other businesses that aren’t in the immediate firing line.

One person’s spending is another person’s income,” Mr Pickering explained.


But there’s good news for people working in healthcare, aged and disability care, welfare, marketing, and technology.

Mr Pickering said jobs in these industries are more likely than others to survive a recession.

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