Coronavirus Crisis Could Hurt Australian Economy In Multiple Ways

Australian Prime Minister Scott Morrison said on Thursday that his country’s economy, already reeling from drought and deadly bushfires, will feel a “significant” hit from the ongoing coronavirus outbreak emanating from China.

Australia is highly exposed to China on many fronts.

“We need to be clear about the full extent of the virus and how much further it will spread, the success of containment measures in other jurisdictions,” Morrison said. “We can’t pretend there’s no impact [from] a global virus like this, and we can’t pretend that we can make it like the day it was before the virus struck.”

Thus far Australia has confirmed 14 cases of the virus. The country banned travelers from mainland China earlier this week.

China is Australia’s largest trading partner, buying about one-third of Australian exports.

Australia also depends heavily upon Chinese tourists and students who spend billions of dollars there annually.

Philip Lowe, the governor of Australia’s central bank, awarned that the current coronavirus crisis will cause more damage to the Australian economy than was wreaked by the severe acute respiratory syndrome, or SARS, in 2003.

“China is a larger part of the global economy [now compared to 2003] and it is more closely integrated, including with Australia,” he said.

Morrison’s travel ban, Lowe said, will impart particular damage to the tourism and education sectors, if it lasts more than six months.

Simon Westaway, the executive director of the Australian Tourism Industry Council, said the ban on Chinese citizens entering Australia will cost “many hundreds of millions of dollars.”

Almost 1.5 million Chinese citizens visited Australia in 2018, representing about one in eight arrivals. Chinese tourists spend about $8 billion in Australia each year.

“There is no doubt that the coronavirus outbreak following on so closely to the bushfires will combine to hit international tourism to Australia very hard,” said David Beirman, senior lecturer in tourism at the University of Technology Sydney. “Later this month the Australian Bureau of Statistics will reveal the December 2019 tourism figures, which are expected to show at best a 25% downturn in international visitor arrivals compared to December 2018. January 2020 is likely to be far worse as the impact of coronavirus will certainly be a factor.”

The travel ban on Chinese nationals is scheduled to expire on Feb. 15, but the government has not indicated if it will be extended.

Aside from Australia’s travel ban, China itself prohibited group tours from leaving the country – this sector, group travel, accounts for about a quarter of the Australian tourism market.

Standard & Poor’s Melbourne-based analyst Parvathy Iyer said on Wednesday that airports in Australia and New Zealand will be hurt by the travel ban, noting that Chinese traffic accounts for 16% of airport business in Australia and New Zealand.

“The coronavirus crisis, sluggish economic conditions across Asia-Pacific, and the impact of the Australian bushfires will dent growth in passenger traffic to [Australia and New Zealand] airports,” she said. “Further, the full impact of the Australian bushfires has yet to play out. Regional communities and small businesses are severely affected, and travel warnings issued by some countries over December-January will crimp [airline] passenger numbers.”

Separately, the International Education Association of Australia, or IEAA, estimates that if Chinese students are banned from enrolling in local schools for the next six months the industry could lose up to 8 billion Australian dollars ($5.4 billion).

About 250,000 Chinese students were expected to enroll this year in Australian universities, colleges and schools. Chinese account for about 11% of the enrollment in Australian universities, a much higher percentage than found in the U.S. or U.K.

“Our sector will suffer a major, long-term reputational damage if we don’t get the right protocols and policies in place,” Phil Honeywood, CEO of IEAA. “This includes policies for tuition fee refunds, free deferral of study, realignment of teaching calendars and student accommodation costs.”

The University of Sydney, the University of Melbourne, The University of New South Wales, Monash University and the University of Queensland each stand to lose hundreds of millions of dollars if Chinese students cannot enroll this year.

“There is a lot of confusion about the [travel] ban and anger towards the [Australian] government,” said Abbey Shi, general secretary of the Students’ Representative Council at the University of Sydney. “The education sector in Australia is being commercialized and students are being treated like cash cows. Universities don’t care about our affected career path, life, tenancy issues.”

The ban could damage the reputation of Australian education.

“Australia will remain an attractive study destination for Chinese students, but it may take several years for Chinese student numbers to recover,” said Salvatore Babones, associate professor at the University of Sydney. “Students who are already in the middle of a degree are likely to return at the first possible opportunity, even at the cost of missing one semester, but students who have not yet started may make other plans.”

Australia’s vast mining industry could also be hurt by the virus, The price of iron ore, Australia’s biggest export to China, iron ore, fell 11% in January alone. Australia exports more than Aus.$60 billion ($40.4 billion) of iron ore to China annually.

Australian mining firm Fortescue Metals is particularly exposed to China as it sells 93% of its products there.

Anglo-Australian miners, BHP and Rio Tinto, are also heavily exposed to China.

Australia’s economy has also been burdened by weak consumption despite the central bank having enacted three interest rate cuts last year to a record low of 0.75%.

On Wednesday, Australia & New Zealand Banking Group projected the economy will shrink in the March quarter, the first such contraction in nine years. But they assured the impact from the virus will probably not last long.

“While the hit to near-term growth is large, we expect the number of [tourist and student] arrivals from China to turn around in [the second quarter], with the rebound in tourism adding to growth in [the third and fourth quarters],” ANZ said. “Consequently, the impact on year-end growth is likely to be small.”

On Thursday, Westpac Banking Corp, lowered its growth forecast for the full year to 1.9% from its prior 2.1% estimate.

However, depending on how long the virus lasts, the economic fallout to Australia could be huge.