The flu-like disease has now infected more than 89,000 people world-wide and killed 3044, including one in Australia. More than 45,000 people have recovered. Cases are surging in South Korea, Italy and Iran. NSW Health Minister Brad Hazzard said people should give each other a pat on the back when greeting each other. “It’s time for us to cease the handshaking,” he said.
The OECD, in special research released on Monday evening, said several countries including Australia should look at stimulus measures to protect their economies. A “mild and contained” virus outbreak would cut half a percentage point from global growth this year. This would take growth to 2.4 per cent, with negative growth in the first quarter of 2020 likely.
The worst hit would be China’s economy, with growth there tipped to be sliced by 0.8 percentage points. South Africa would suffer the next biggest hit, at 0.6 percentage points, while Australia’s economic output would be cut by half a percentage point – or almost $10 billion. It expects Australia’s economy to grow by 1.8 per cent this year.
“The adverse impact on confidence, financial markets, the travel sector and disruption to supply chains contributes to the downward revisions in all G20 economies in 2020, particularly ones strongly interconnected to China such as Japan, Korea and Australia,” it said.
The organisation warned that if the virus outbreak is longer than expected and spreads across Europe and North America then global growth could slip to just 1.5 per cent, which would be a world recession.
Prime Minister Scott Morrison told Parliament the government recognised the coronavirus would have a “significant impact” on the economy, adding he was focused on protecting employment and businesses.
“The actions of our government will always put jobs first, will always put those businesses first, will always put that investment first,” he said.
He and Treasurer Josh Frydenberg said any stimulus, likely to be announced within days, would be targeted and scaleable. Sectors most affected include international education, tourism and seafood.
The OECD singled out Australia as one country that should look to protect the economy by loosening its purse strings.
“Additional stimulus measures could be implemented without endangering debt sustainability in a number of economies including Australia and Germany,” it said.
Stimulus options including pulling forward the next tranche of the government’s personal income tax cuts, adoption of the Labor Party’s investment guarantee policy or assistance to directly affected industries or regions.
One Liberal MP, who asked not to be identified ahead of the Coalition’s party room meeting on Monday, said in 4-6 months many businesses won’t be able to meet their obligations and they will need help to stay afloat.
He said the Reserve Bank should consider extending payment terms to banks so that they can be passed onto customers.
“If that doesn’t happen people will lose their jobs and it will cascade from there,” he said.
Another Liberal MP said tax cuts would be preferable to stimulus, while one cautioned that tax cuts were unlikely to work if “people are scared”.
Nationals MP Barnaby Joyce said “we need to analyse needs, prioritise, cost, then make decisions”.
Liberal MP Craig Kelly warned against a sudden cash splash. “The worst thing would be reckless, unproductive and wasteful government expenditure,” he said.
Markets and economists believe the government will be aided by the Reserve Bank board, which meets on Tuesday and is expected to cut official interest rates by at least 0.25 percentage points.
That would take cash rate to a new all-time low of 0.5 per cent.
Any cut may have to be accompanied by regulations to tighten lending standards. CoreLogic’s measure of home values showed another large lift in February with Sydney’s median house price now back over $1 million while in Melbourne it is now $810,000.
NAB chief economist Alan Oster said a rate cut on Tuesday, followed by another next month, were now likely given the hit to the local economy being caused by the virus outbreak.
“While we have long factored in further rate cuts given an underperforming economy, the coronavirus is having a large negative effect on China, which is Australia’s largest trading partner, and also in the local economy, with the travel ban curbing tourism and education exports and spill-overs to local spending and disruptions to supply chains,” he said.
“Lower interest rates can help cash flows, lower the exchange rate and potentially boost confidence, but easier fiscal policy will also be required, particularly when both the household sector and business investment are already weak.”
The ASX200 suffered its sixth consecutive daily fall, shedding another $15.5 billion in value. It could have been worse, opening $60 billion down before improving after Chinese markets showed a lift in investor spirits.
The sharemarket has now lost more than $225 billion or 11 per cent of its value since it hit a record high on February 20.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra