Coronavirus will hurt GDP: RBA’s Guy Debelle

Guy Debelle has warned a dive in student arrivals triggered by the coronavirus will wipe up to half a percentage point from GDP growth in the current March quarter.

Deputy Governor of the Reserve Bank Guy Debelle. Picture: AAP

Reserve Bank deputy governor Guy Debelle has warned a dive in student arrivals and the impact on the education sector triggered by the coronavirus will wipe up to half a percentage point from GDP growth in the current March quarter.

Appearing before a Senate estimates committee late on Wednesday night, Dr Debelle said the RBA had analysed student visas and airport arrivals and concluded that these services sectors, which make up about 5 per cent of the economy, would take a 10 per cent hit over the three months through the end of March.

Although the ABS on Wednesday released better-than-expected 0.5 per cent growth over the December quarter, the figures for the current three-month period won’t be finalised until mid-year.

“That doesn’t take into account any supply chain disruption,” Dr Debelle said.

“There’s one month of the quarter still yet to occur and this is evolving at a rapid rate. I would emphasise that these are our best guesses,” he said.

“It doesn’t look like the effect of the bushfires had all that much impact on the December accounts. The effect in the national accounts is not particularly apparent. We expected, and still continue to expect, the impact to be larger in the current (March) quarter,” he said.

Dr Debelle said the economy could stage a bounce-back once the virus passed.

“The only difference between the financial crisis and this (the coronavirus) is that there is a probability that the virus will have its effect and go away,” Dr Debelle said, noting that the effects of the GFC were longer-lasting.

“There are ongoing risks to consumption growth,” he said. “We had, absent viral effect, expected to see a gradual pick up in growth over the period ahead.”

Dr Debelle also warned the RBA was almost out of monetary policy ammunition as the official cash rate headed towards zero.

“We’ve got the capacity to reduce rates one more time,” Dr Debelle said.

Dr Debelle said the RBA would then launch a program of quantitative easing “if there is a need for further stimulus” if the central bank took interest rates down to 0.25 per cent, down from the current 0.5 per cent record low reached earlier this week.

“You are correct in pointing out that we have one interest rate cut left,” he said.

Dr Debelle’s comments follow the RBA this week cutting the official cash rate by 25 basis points to a fresh record low of 0.5 per cent. On Wednesday the US Federal Reserve issued an emergency 50 basis point cut as part of a co-ordinated central bank response to the slowing global economy and share market volatility triggered by the coronavirus.

Dr Debelle also noted that while Australia had one round of interest rate cuts left before RBA would consider so-called unconventional monetary policy he said the central bank “does not think negative interest rates would be appropriate in the Australian context”.