Coronavirus to hit economy harder than bushfires: Josh Frydenberg
After $82bn was wiped off the stockmarket in two days, Scott Morrison and Josh Frydenberg cleared the way for a budget surplus retreat.
Scott Morrison is clearing the way for a government retreat on the budget surplus, with Josh Frydenberg declaring the economic hit from the coronavirus outbreak would be worse than the bushfires amid fears the “shutters could come down on the global economy”.
After uncertainty over the epidemic wiped $82bn off the stockmarket in the past two days, the Prime Minister warned that the damage from the health crisis was “not limited to the education sector and tourism sector”.
“It’s affecting the building industry,’’ Mr Morrison said. “It’s affecting the manufacturing industry. It’s affecting our export industry. When planes aren’t coming in, planes aren’t going out, and the bellies of those planes aren’t taking Australian produce into those markets.”
As the Treasurer revealed that G20 finance ministers and central banks were so concerned about the rippling effects of the epidemic that they feared the “shutters could come down on the global economy”, the government gave its strongest signal yet that its predicted $5bn surplus may not be possible.
Mr Morrison refused to give a guarantee, saying: “When we framed the budget a year ago … who thought there was going to be a coronavirus epidemic?
“These are unknown global shocks … (We’re) being upfront and honest with the Australian people about where we see things each and every day.”
There are more than 80,000 confirmed cases of coronavirus globally and there have been about 2700 deaths, amid significant outbreaks in South Korea, Japan, Italy and Iran.
Australian shares were pummelled for a second day after Wall Street suffered its worst day in two years in response to the worsening global spread of coronavirus.
Australia’s benchmark S&P/ASX 200 share index closed down 111.67 points, or 1.6 per cent, at 6866.6 points, after falling as much as 2.6 per cent to a seven-week low of 6800 in early trading.
After returning from the G20 finance ministers and central bank governors meeting in Saudi Arabia, Mr Frydenberg said the International Monetary Fund had estimated that the impact on the global economy from the coronavirus would be about 0.1 per cent this year.
Growth had been downgraded from 3.3 per cent to 3.2 per cent.
“Treasury have told me they haven’t finalised their advice on the economic impact of the virus. They say there’s considerable uncertainty around what exactly that impact will be,” the Treasurer said. “The message is very clear: the impact will be more significant than the bushfires and it plays out more broadly across the Australian economy.
“Here in Australia, the economic impacts have been significant … not just the tourism and education sectors, which together contribute around $16bn to the Australian economy, but also agriculture and the destruction to end-to-end supply chains. I have been talking to people in the building industry who have expressed some concern about their ability to get product in the event that the Chinese factories remain closed for a period of time.”
Caution over the budget comes as Australia considers how to plan for the Tokyo Olympics in July. Sports Minister Richard Colbeck said athletes were ready to “make their mark” but they should not participate in the games “at the risk of their health and wellbeing”.
“We continue to work with the relevant authorities both here and overseas to ensure our athletes remain safe and protected as the response to the coronavirus continues,” Senator Colbeck said.
Deloitte Access Economics partner Chris Richardson said while there had been a “bunch of bad news” recently, the key drivers of the budget — jobs, iron ore and coal prices, and interest rates — were still holding up pretty well.
Coking coal prices in Australia have increased from $US136 a tonne in December to $US152 this week and iron ore prices are steady, sitting at $US91 a tonne.
“You would still say there’s a chance of a surplus being delivered,” Mr Richardson said. “The budget update ahead of Christmas built in a fair amount of fat.’’
Mr Morrison confirmed on Tuesday that all 15 Australians recovering in hospital from coronavirus had been given the all-clear and sent home.
There have been no community transmissions in Australia.
The seven Australians who tested positive for the disease after being evacuated from the Diamond Princess cruise ship are also in a stable condition.
Mr Morrison said the government had “very limited” options to alleviate the disease’s impacts on the budget, but was focusing on domestic tourism campaigns. “The truth is that when you go through a global virus such as this, remembering this is a health crisis, not a financial one, that Australians will travel less overseas obviously. And the rest of the world is doing exactly the same,” he said.
“I can assure taxpayers … that we’re not a government that engages in extreme fiscal responses.”
Labor Treasury spokesman Jim Chalmers said “coronavirus on its own doesn’t excuse or explain economic weakness”.
“Scott Morrison should acknowledge that because of his economic mismanagement we approach this substantial challenge of coronavirus from a position of relative economic weakness and not strength,” he said.
Dr Chalmers said the surplus was “a test that they set for themselves and it remains to be seen whether they will meet that test”.
Additional reporting: Richard Ferguson, David Rogers
More Coverage
Rate cuts coming as inflation doves fly
A return to monetary policy normal could be derailed if governments don’t rein in their big spending impulses.
Chalmers launches economic poll fight as inflation falls
As the odds overwhelmingly firm for an interest-rate cut in February, Jim Chalmers declares the government had handled the cost-of-living crisis better than other countries.