Government prepares for virus economic downturn as fires hit retailers


Treasurer Josh Frydenberg urged people to not “write-off the Australian economy” but conceded the nation was facing a hit from the events of recent weeks.

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“I think you will have a significant impact,” he said. “What we do know is that the bushfires, the floods, the ongoing drought, have all had an impact on the economy.”

Prime Minister Scott Morrison went further, saying the short term negative impact would be offset by the post-disaster recovery.

“There will also be a recovery and there will be a recovery to the bushfires with the extensive works that will be undertaken with rebuilding,” he said.

“We expect a hit, particularly in this quarter, on the coronavirus, and how much more it extends beyond that really does depend on how this virus continues to play out at a global level.”

The impact of the bushfires was evident in retail sales figures, which showed a 0.5 per cent drop through December.

Treasurer Josh Frydenberg is warning of “significant impact” to the economy from the coronavirus.Credit:Alex Ellinghausen

NSW, parts of which endured the fires all through the month, saw a 1.3 per cent drop with sharp drops in sales of food (by 1.2 per cent), cafes and restaurants (by 1.7 per cent) and department stores (3.5 per cent).

By contrast, Victoria recorded flat sales. Fires did not extensively hit the state until the last days of December.

The volume of sales lifted by half a percentage point through the December quarter, the best quarterly performance in more than a year. But to get those extra sales, retailers were forced to deeply discount their goods.

NSW posted its third consecutive quarterly drop in sales volumes, only the fifth time since 1982 that this has happened.

This followed Wednesday’s new car sales which showed the worst January peformance since 2003. Car sales are not included in overall retail sales but do form a part of the national accounts.

The sharp drop in retail turnover pre-dated the outbreak of coronavirus which analysts now believe will have a substantial impact as the number of victims continues to grow.

TD Securities senior strategist Mitul Kotecha said while transport and retail sectors across China have been hit, production from the manufacturing sector was now falling as businesses remained shut and supply chains ground to a halt.

“What we know is that the quarantine measures, travel restrictions and business shutdowns have been extensive and while these may limit the spread of the virus, the immediate economic impact may be more significant than the virus itself,” he said.

S&P Global Ratings believes car production in China, the world’s biggest automotive manufacturer, would fall by 15 per cent through the first three months of the year. This would have flow on impacts to suppliers including producers of metals such as aluminium and steel.

Already South Korea-based car company Hyundai has been forced to shut its local plants because it cannot access supplies out of China.

South Korea car manufacturer Hyundai has announced it is shutting down production plants until it can get supplies out of China as the coronavirus forces the closure of manufacturers across the country.

South Korea car manufacturer Hyundai has announced it is shutting down production plants until it can get supplies out of China as the coronavirus forces the closure of manufacturers across the country.Credit:alamy.com

Fellow rating’s agency Moody’s said the downturn in global tourism would hit Qantas, Virgin Australia and Air New Zealand. It found foreign tourists took, on average, two domestic flights during the visits to Australia.

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Airlines could see a fall in profits and were likely to respond by reducing capacity, reassessing shareholder payments and putting off possible capital expenditure. On Thursday, Virgin said it would permanently end its direct flights between Hong Kong and Sydney from March 2, due in part to the coronavirus.

Economists with Westpac and the Commonwealth banks both said on Thursday the virus was likely to hurt the economy through the first three months of the year.

The Commonwealth’s chief economist, Michael Blythe, warned Australia’s trade sector and the federal budget were at risk.

“The implication is that Australia’s rare current account surplus will vanish and the budget surplus pencilled in for 2019-20 will prove elusive,” he said.

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