Coronavirus US: Spike in cases will hurt Australia’s economy

The surge in COVID-19 cases is bringing the US to its knees and this puts Australia at grave risk too.

The United States of America has seen a dramatic surge in virus cases, and this worrying new trend places the whole world at risk, especially Australia.

When coronavirus first broke out in late February, Donald Trump said he believed “it’s going to disappear. One day it’s like a miracle, it will disappear,” he said.

Fast forward just over four months, 2.93 million there have since caught coronavirus and more than 134,000 have died. Last week, however, the US President confirmed he remains optimistic, insisting he expects the virus to “sort of just disappear.”

Australia has had less than 8500 cases of coronavirus. In total, ever. America is notching up a catastrophic 8000 new cases each morning before breakfast.

As the next chart shows, America has seen over 50,000 new recorded cases a day in recent times, on Wednesday it had a record 62,000.

And the alarming rate has continued with more than 60,500 new cases recorded on Thursday.

The worsening situation in the world’s biggest economy hasn’t hit us yet. But it will.

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The US is currently seeing a surge in COVID-19 cases. Picture: Supplied.

WALL STREET LEADS THE WAY

America’s markets lead the whole world. Looking at the US markets is a quick way to predict what Australian stocks will do each morning. According to the RBA, Australia’s stock market is highly correlated with the US stock market – about six times more so than with the Chinese stock market.

For now, US markets are very optimistic and valuations are high, despite the economic trainwreck and worsening pandemic. That optimism is lifting the Australian market. The Australian S&P 200 index has risen 33 per cent since its dip in April and is only 15 per cent below its all time high. But if and when US markets falter, expect the ASX to follow them down.

IT’S NOT JUST FINANCE

Then there’s the real world linkages. Australia depends on the USA for a lot of important industries. We send them imports, we buy their exports, they invest in Australian businesses and we do the same for them.

Unlike our trade with China – centred on boatloads of red dirt and black coal – a lot of the economic linkages with the USA requires people-to-people contact

One of the biggest service sectors is tourism. As the next chart shows, the USA had recently boomed as a source of tourists for Australia. By 2018 even more Americans were coming to Australia than Brits!

In part that’s because of non-stop Qantas flights between Dallas and Sydney. It’s also because our dollar keeps falling. Attracting tourists from the richest country in the world has been great for local businesses.

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Over the past few years Australia had seen an influx in US tourists. Picture: Supplied.

Australia’s tourism sector counts as an export because it involves selling to foreigners. That means every dollar spent by Americans here went straight to our GDP and makes tourism vital for our economic growth. But those dollars are now totally gone. And the chance of them coming back? Not high.

While most parts of Australia are close to eradicating the coronavirus, in America the virus is the one doing the eradicating. Hundreds of Americans are dying each day, with the chance that number will spike upward into the thousands. That means the prospects of Australia opening its borders to the USA again are remote.

Assume Victoria can reduce viral transmission back to zero – Australia has a good chance of being essentially free of COVID-19 in several months. For the USA achieving the same will take years. The bigger the difference between our level of COVID-19 and theirs, the higher the barrier to opening the borders.

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Victoria is trying to fight its COVID-19 cases outbreak in order to ensure coronavirus cases are under control in Australia. Picture: Asanka Ratnayake/Getty Images.

That matters for our economy. From Goldman Sachs to IBM to McDonalds, a lot of American businesses operate in Australia. Impeding the flow of people between the two countries is not helpful. And lots of Australians work in America. We have financiers in New York, technology nerds working in Silicon Valley, Aerospace engineers working at NASA. Chris Hemsworth, of course, is plying his trade in LA.

There’s loads of Aussies in America. Like the Aussie who started a shop in LA selling proper meat pies. Nick Bishop and his partner Geri Chua ran the pie shop – called Fork-In Pies – for years but according to its website it is now closed indefinitely “due to COVID-19.” The only pies it is selling are frozen ones sent through the mail. Aussies who lose their work in America are trickling home and finding the economy here is not so great either. And if you’ve just flown in, you’re not going to be eligible for JobKeeper.

Unless something dramatic happens, we will all pay the price for America’s failure to control the pandemic. That price will be painful. Markets will fall, hurting people’s retirement savings. Jobs will be lost, unemployment queues will lengthen, and there will be even more people applying for the jobs that are advertised.

With just four months left until the November Presidential election, let’s hope the US decides to take strong action soon. The rest of the world depends on them far more than they realise.

Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.