Australian economy to shrink by 'at least' 0.5 per cent due to coronavirus: Treasury
The Australian economy will shrink by at least 0.5 per cent during the March quarter due to the coronavirus outbreak, with the figure likely to increase as the epidemic continues to spread.
This latest estimation of the fallout from the virus measured the effects on tourism, education and exchange rates but did not take into account other impacted industries, Treasury secretary Steven Kennedy said during Senate estimates on Thursday morning.
Treasury secretary Dr Steven Kennedy said the impacts of coronavirus on the economy would continue through the year.Credit:Alex Ellinghausen
"We are looking beyond the March quarter and there are a range of possible scenarios ... in our view it's just too early to tell just what those economic impacts might be," Dr Kennedy said.
The Morrison government is finalising its fiscal response to the economic fallout of the epidemic, which will probably include incentives for businesses to invest and hold on to staff, and assistance for self-funded retirees affected by lower interest rates.
"It makes sense for discretionary fiscal actions to be taken in response to significant shocks in the economy," Dr Kennedy said. "The recent bushfires, the emergence of the COVID-19 coronavirus and before these most recent shocks the global financial crisis, are examples of shocks that comfortably satisfy the significant criteria."
The contraction from coronavirus is in addition to a 0.2 per cent impact from the bushfires over the December and March period, with the biggest impact expected to be seen in the most recent quarter.
There have already been signs of weakness, with international trade data for January released by the Australian Bureau of Statistics on Thursday showing a 6 per cent rise in exports of rural goods to $4.4 billion on seasonally adjusted terms. The drought and bushfires have put livestock farmers under pressure, which has seen some sell greater numbers of cattle.
The import of capital goods fell $640 million, signalling less business investment over the month.
Australia's current account surplus was $5.2 billion over the month, down $166 million on December.
Treasury deputy secretary Meghan Quinn said during Senate estimates the department "at the moment [is] not forecasting a recession for the Australian economy".
The government is considering stricter travel bans following the first coronavirus death in NSW and more than 3100 deaths worldwide, as authorities struggle to contain the outbreak.
Reducing travel from China to Australia has already had a significant impact on the tourism and education sectors, which are reliant on Chinese tourists and students.
"It is now clear the impact of COVID-19 on the economy will be different to SARS. The impact of SARS took on a V shape - a sharp, relatively contained reduction in activity, mostly in Asia, followed by a quick bounce-back," Dr Kennedy said. "The economic impact of COVID-19 is likely to be deeper, wider and longer when compared to SARS."
China, where the outbreak started, was in "contractionary territory", he said. China is Australia's biggest trading partner.
"It will create more risk of a prolonged downturn and fiscal support will be needed to accelerate the recovery of the economy, especially once the health and health management effects of COVID-19 start to fade. "A feature of the COVID-19 shock is that it impacts both supply and demand and has a particular time dimension."
The Reserve Bank cut rates to a record low 0.5 per cent on Tuesday in an effort to protect the Australian economy.
Dr Kennedy said the Australian economy was "very well placed to respond" to the shock due to underlying strength in the economy and the quality of the health sector.
Finance Minister Mathias Cormann said the government was "making judgments" about whether items such as masks and medications needed to be stockpiled or supplemented.
Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.