Ratings agency Moody’s said on Monday the “spillover” from the Chinese economic downturn would cut another 0.3 percentage points off Australian economic output this year, adding to the damage from the bushfires.
“Consequently, we have revised our 2020 growth forecast to 1.8 per cent from 2.2 per cent,” the company said.
“Our forecasts for improving growth assume that interest rate cuts from the Reserve Bank of Australia will help the housing recovery as well as business activity.
“In addition, fiscal stimulus in the form of tax cuts and public infrastructure spending are already supportive.”
Treasurer Josh Frydenberg will head to Saudi Arabia late this week for a summit with global finance ministers and treasurers at the Group of 20 gathering, where the impact of the virus will be a priority.
Canadian finance minister Bill Morneau has warned of a “significant impact” from the virus and said this would be a key topic at the weekend summit.
The Australian government has been buoyed by economic figures showing good results for exports and strong prices for iron ore, but it has commissioned the Treasury analysis to consider scenarios including a severe downturn.
The government forecast a $5 billion surplus for this financial year in the budget update last December and regarded the impact of the bushfires as manageable.
While Mr Morrison’s $2 billion bushfire recovery fund sacrificed some of the projected surpluses over the next four years, this required only $500 million from this year’s surplus.
The threat from the coronavirus is regarded as much more significant given the slowdown across China and the continued rise in infections and deaths.
“It looks like it’s not going away and its impact on China and our economy is potentially profound,” said Stephen Anthony, chief economist at Industry Super Australia.
Mr Anthony cautioned it was better to “suspend judgement” on the full impact of the virus until more information emerged over the next few weeks to show whether it was a temporary shock or a greater danger.
Ratings agency Standard & Poor’s has cut its growth forecast for Australia to 1.7 per cent for this calendar year but said this was not a threat to the country’s overall budget position.
“By itself, a short and temporary delay in balancing the general government budget is unlikely to strain Australia’s creditworthiness,” S&P said last week.
If the virus was not contained, however, S&P said the economic impact would “escalate” with “more severe credit implications” for the budget.
David Crowe is chief political correspondent for The Sydney Morning Herald and The Age.