Australia — COVID-19 impacts
World Risk Developments February 2020
The coronavirus outbreak presents risks for Australian exporters, given COVID-19 impacts on Chinese and global growth. The longer it takes to contain the virus, the greater the toll on China’s economy and global trade. However, the Chinese and Australian government’s decisive measures to contain the spread of the virus should help limit the hit to exporters in the first quarter of 2020. The virus will dampen China’s economic outlook by lowering consumer spending on transportation, retail, tourism and entertainment, and reduce import demand. However, the IMF’s current baseline scenario predicts China’s economy could return to normal in the second quarter. In this scenario, the impact on the world economy would be relatively minor and short-lived. Australia’s exports to China accounted for around one-third of total exports in 2018-19. By contrast, during the SARS outbreak in 2003, China accounted for just 7% of total exports.
Energy and resources exports are exposed to slower Chinese industrial production and construction (see Table). Around two-thirds of metal ores and minerals (predominantly iron ore) are sent to China, mostly from Western Australia. Australia sends around 35% of its LNG exports to China, mostly from Queensland. Thermal coal consumption is much lower than the average for this time of year, posing a risk to coal exports. Falling commodity prices adds to downside risks; the price of iron ore has fallen 7.6% so far in 2020.
Australia’s education and leisure tourism exports are likely to be negatively affected during a peak period of travel and student commencements. Trips by Chinese tourists over the 2020 Lunar Year Holiday period were down 73% relative to 2019. Education-related travel, which includes overseas students' tuition fees and living expenses, is Australia's fourth-biggest export to China behind iron ore, LNG and coal. Chinese students accounted for 28% of Australia’s nearly 760,000 international students in 2019. And China is Australia’s largest tourism market, accounting for over 15% of international visitors and 27% of visitor expenditure in the year ending September 2019.
Travel restrictions in Wuhan, an important transport and auto manufacturing hub, and in other cities is causing disruption to supply chains. The extended shutdown of Chinese factories producing toys, electronics, clothing and autos makes it more difficult for Australian retail businesses and manufacturers to import necessary supplies, hindering their export operations.
Agriculture, forestry and fishing exports are also vulnerable because of a lack of labour due to travel restrictions, restricted freight options, congested transport logistics and factory shutdowns. Lower Chinese demand for wool and cotton is likely; China purchased almost 70% of Australia’s $6.4 billion in wool and cotton exports in 2018-19. The closure of restaurants in China and reduced demand for eating-out will hit food and beverage exports, particularly meat, wine, lobster and other wild-caught aquatic products. The seafood industry is suffering after China put a ban on some live seafood trade; seafood exports to China were about $900 million in 2018-19.
Elsewhere, smaller export industries such as professional and scientific equipment may also feel the pinch; Australian hearing implant maker Cochlear lowered its profit forecasts as the coronavirus outbreak prompts Chinese hospitals to delay ear-related surgeries to limit spreading of the infection.