Australia Likely to be Hard-Hit by Coronavirus

The China coronavirus has disrupted China’s economy as well as the economies of South East Asia. Chinese officials have closed most of the factories in the country and restricted millions of people from traveling. S&P has lowered its 2020 growth forecast for China from 5.75% to 5.0%.

China is Australia’s largest trading partner, so when China sneezes, Australia can expect to catch a cold. Chinese tourists account for some 15% of visitors to Australia, so a steep decline in Chinese tourists will mean billions of dollar in losses for the Australian tourist sector.

Last week, the Reserve Bank of Australia sounded positive in its growth forecast, but there’s no question that a significant slowdown in the Chinese economy will damper Australian growth. RBA Governor Philip Lowe acknowledged that the coronavirus outbreak could cause greater damage to the Australian economy than the SARS outbreak in 2003. The reason? China’s economy now accounts for 16% of global GDP, compared to just 4% in 2003. As well, Australia’s links with China are much more extensive than they were 17 years ago. Aside from the damage to tourism, Lowe also noted that coronavirus was having a negative impact on companies that import from China as well as on international students coming to Australia, with a large percentage coming from China.

The coronavirus has also taken a bite out of the Australian dollar. The outbreak has dampened investor risk appetite, which has resulted in investors seeking safe-haven assets, at the expense of risk assets such as the Australian dollar. On Monday, the Aussie slipped to its lowest level since 2009, as AUD/USD fell to 0.6667. If the outbreak continues to spread, the Australian dollar’s slide could continue.