Coronavirus and bushfires to reduce Australia’s GDP growth to zero

The governor of the Reserve Bank of Australia has warned that the virus is having an immediate economic impact but there was a bigger long-term issue.

The coronavirus has worsened the economic outlook for Australia which was improving until the health emergency.

The Reserve Bank’s governor Philip Lowe said that the virus had had an immediate impact on the economy.

“Absent the virus, the outlook in Australia was improving,” he told the Australia-Canada economic Leadership Forum in Melbourne.

BIS Oxford Economics predicted that Australia’s GDP would be reduced by 0.5 percentage points in the three months to March.

This would reduce overall growth to zero in that time period.

Dr Lowe did not expect the virus to fundamentally change the outlook in the long term but its immediate impact was felt.

“It is having a major effect on the education sector – we are probably feeling that more than many other places,” he said.

Mr Lowe was speaking at the event with the governor of the Bank of Canada Stephen Poloz. Picture: Mick Tsikas/AAP

Roughly 200,000 Chinese students were due to begin study in Australia this month and roughly half that number remain stranded at home according to the International Education Association of Australian.

This could have an $8 billion impact on the economy if they cannot attend the new term.

The tourism sector was also feeling the pain of a weaker Chinese market as was the import and export markets.

China is Australia’s largest tourism market and accounted for 15 per cent of total tourists in the year to June.

However, Dr Lowe pointed out that the infection rate was decreasing so optimism in the economy could return.

“There are still a lot of people getting infected but the infection rate is coming down, so if that continues, I think we can have reasonable optimism that the number of cases has stabilised,” he said.

China would also provide economic stimulus in response to the coronavirus that Australia would benefit from, said Dr Lowe.

“I think we’ll see Chinese stimulus. That will be good for us and we’ll return to that gradually improving trend we looked like we were on before the virus.”

There are currently 2015 new confirmed cases of the virus, now officially known as COVID-19, reported in China on Wednesday, the lowest number since January 30.

CLIMATE CHANGE

There is another crisis that will have a longer lasting economic impact if not dealt with soon, said Dr Lowe.

“Addressing climate change isn’t something that is a core responsibility of the Reserve Bank of Australia, but what we do have a responsibility to do is to understand the economic and the financial implication of climate change,” he said.

“The economic implications are profound.”

Dr Lowe said there would be an impact on the values of assets as a result of climate change. Picture: Mick Tsikas/AAP

Dr Lowe said that climate change was not in the remit of the Reserve Bank but it was impossible to ignore that the world was getting hotter and the climate was becoming more variable.

Already the bushfire crisis cost the tourism sector of Australia upwards of $4.5 billion in cancellations and retail sales were down 0.5 per cent during the emergency.

“Climate change is affecting the nature of production in Australia, the nature of investment, ultimately the nature of our exports,” he said.

“At the moment, I think it’s affecting confidence of people and therefore ultimately spending.”

Dr Lowe said while some assets would lose their value, there was also a lot of opportunities in climate change.

“We’re not responsible for designing climate change policy, but we are responsible for understanding implications of it.”

– With AAP