While acknowledging the difficulty in estimating the full cost of the Wuhan coronavirus, investment bank UBS says it looks like it’ll cost Australia at least $1 billion.
The full figure could come in far higher however, with UBS analysts believing a two-month group travel ban would cost Australian $1 billion in tourism alone.
The virus also looks likely to reduce spending on education, exports, and consumer goods while also lowering commodity prices, a major Australian export to China.
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As the coronavirus crisis continues to grow, so too does the cost to Australia.
While acknowledging the difficulty in putting an exact dollar figure to it, global investment bank UBS has proposed a baseline.
“Our economists estimate a two-month halt on China package tours could directly cost Australia at least $1bn in services exports. Secondary impacts could be multiples of this
amount; particular if commodity exports are affected,” UBS analysts and economists wrote in a research note issued to Business Insider Australia. “As with SARS, the coronavirus looks set to have a material impact on GDP, retail sales and tourism.”
Appearing to spread “faster than SARS” and with higher mortality than swine flu, UBS said financial markets are understandably concerned.
“Stocks exposed to the Chinese consumer (Treasury Wine), Chinese shoppers in Australia (Scentre, Vicinity, Crown, Star), Chinese students (IDP Education) and tourism (Qantas, Virgin, Sydney Airport, Flight Centre, Webjet, Corporate Travel) are most likely to be affected,” the report noted. “Healthcare stocks could experience higher demand, while lower commodity prices are a negative for Resources.”
The broader Australian economy also looks exposed, given China buys a third of its exports, or around $152 billion – a far greater share than during the SARS outbreak. Then there’s the country’s tourism sector, where Chinese visitors annually contribute up to $20 billion. China’s ban of tour groups threaten to seriously disrupt the sector this year.
“We estimate that up to 17% – up to $3.3 billion – of this spending is from group tours. Given February & March are two of the busiest months for Chinese travellers to Australia – as much as one quarter of annual arrivals – we estimate the cost from the halt could be at least $1 billion,” UBS noted. “However, if travel disruptions are extended, or expand to cover independent travellers, the cost could be much greater.”
This would only be worsened be if Australians, spooked by the sight of face masks and media stories, reign in their own spending and travel, according to AMP Capital economist Diana Mousina.
“There could also be an impact if Australians start staying home. On our estimates, the total detraction to growth is worth around 0.2-0.3% of GDP but there are offsets from the Australian dollar depreciation – as a result of the risk-off global environment – and lower travel to China which is a reduction in imports – unless travellers choose to go to another offshore destination),” Mousina said in a separate research note. “Along with the bushfires, the total impact to March quarter GDP growth could be around [a loss of] 0.5%.”
China’s economy, responsible for about a third of the world’s GDP, will also face pressures and thus a potential slowdown if the situation was to worsen.
“The disruption to China’s economic growth will be mainly via lower retail spending, travel and closed or not fully operational businesses,” Mousina said. “The risk is that the situation worsens and disrupts economic growth for a number of months and chokes off the recent improvement in growth across China and other emerging markets.”
A weakened China would almost certainly translate to a weakened Australian economy. With the full impact of the bushfires yet to be quantified, a long and disruptive virus is the last thing Australia needs.
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