Finance Finance News Coronavirus drags global growth to post-GFC record lows

Coronavirus drags global growth to post-GFC record lows

The coronavirus is wreaking havoc on the economy.
The coronavirus outbreak threatens to spread further across the board. Photo: Getty
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The coronavirus’ mounting death toll could slow global economic growth to its weakest level since the global financial crisis, research shows.

The fast-spreading disease has already rattled stockmarkets and now Oxford Economics has forecast the virus’s “direct and indirect” effects could push global GDP growth below 2 per cent for the first quarter.

That would put annual GDP growth for 2020 on track to fall to 2.3 per cent – the slowest rate of growth seen since markets collapsed during the GFC in 2008.

That’s assuming the worst-case scenario is avoided, Oxford Economics’ Ben May added.

“An increase in the geographical spread and duration of the restrictions that have been imposed already could lead to even weaker activity in the affected regions,” Mr May said.

“The spillovers to the rest of the world from supply chain disruption and fewer Chinese tourism visits, among others, would mount.”

China also plays an immense role in global supply chains through its manufacturing of components used in other products, and quarantine efforts could lead to shortages of those parts.

“Indeed, anecdotal evidence suggests this is already a problem for some firms,” Mr May said.

The rapid spread of the disease could also trigger panicked investors into a mass sell-off of shares, which would “further dampen” economic activity.

“As a result, the knock-on effects from the China shutdown on the rest of the world might be greater than our model simulations imply,” Mr May said.

Billion-dollar damage

Australia’s GDP is also slated to take a hit as China accounts for nearly one-third of our exports.

But where the coronavirus will do the most harm is in Australia’s $60 billion tourism industry.

In the 2018-19 financial year, tourism accounted for 3.1 per cent of Australia’s national GDP and 4.6 per cent of the nation’s exports, with foreign travellers pumping $39.1 billion into the economy.

The coronavirus poses a significant threat to that money, according to a report from global financial services firm UBS.

The company said tour operators will lose at least $1 billion alone from the Chinese government’s recent decision to ban outbound group tours for two months.

If that ban is kept in place for a longer time period, or extended to include individual travellers, those losses will continue to mount.

UBS cautioned that the secondary impacts of the ban could cost “multiples” of the original $1 billion, especially if commodity exports are affected.

Diana Mousina, senior economist at AMP Capital, said Australians choosing to stay at home during the ongoing virus scare will further weigh on tourism hopes.

“On our estimates the total detraction to growth is worth around 0.2 to 0.3 per cent of GDP,” Ms Mousina said.

Some of that may be offset by a lower Australian dollar, making our other exports more competitive on global markets, but the damage will still be done.

“Along with the bushfires, the total impact to March quarter GDP growth could be around -0.5 per cent,” Ms Mousina said.

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