Moody’s downgrades Australian, Chinese outlook

Ratings agencies have downgraded their forecasts for the Australian economy due to the coronavirus crisis.

Ratings agencies have downgraded their forecasts for the Australian economy due to the coronavirus crisis, with the China travel ban extended by a week and large sections of the Chinese economy shut down.

Moody’s estimates weaker demand in China, lower commodity prices and the bushfires will cut 0.3 per cent off the Australian economic outlook, reducing growth for 2020 from 2.2 to 1.8 per cent.

“Australia’s exports to China will likely suffer in the short term, which has prompted us to revise our 2020 growth projection by more than we otherwise would have,” Moody’s said.

The US ratings agency said China would be the hardest hit, reducing its growth forecast this year from 5.8 to 5.2 per cent.

It said countries outside China would be hit by a fall in tourism as well as disruptions to supply chains as China’s factories have only partly resumed production following the end of the new year holiday. Moody’s said the latest downgrades were made on the assumption the coronavirus would be contained in the first quarter, warning the global impact could be much more severe if the virus “grows to pandemic proportions”.

UBS last week predicted that Australia would record negative economic growth in the March quarter, revising its expectation from 0.2 per cent to minus 0.1 per cent.

Morgan Stanley has downgraded its expectation from 0.5 per cent to the “risk of a flat” March quarter as a result of a fall in Chinese tourism, the potential impact on the education sector and weaker commodity prices.

The investment bank was expecting Australia’s growth for 2020 to come in at 1.9 per cent for the year, down from a projected 2.1 per cent.

Last week’s extension of Australia’s ban on travellers from China by at least another week would mean further negative impacts for the economy.

Education spending from China, which is now under a question with more than 100,000 students still in China ahead of the start of the academic year, makes up 0.6 per cent of Australia’s GDP.

The hit to the education sector is still unclear with many universities working with students in China to make arrangements to accommodate their delayed return. The forecasts come as large sections of the Chinese economy remain shut down.

The New York Times has estimated that some 750 million Chinese still remain in some form of home detention.

In the province of Hubei, the centre of the epidemic, an estimated 60 million people are under lockdown as authorities work to contain the outbreak.

Bloomberg Economics has estimated that China’s economy has only been running at 40-50 per cent capacity in the past week.

Migrant workers who staffed factories had been unable to return to work, and some factories who have workers have not been given permission to resume operation.

E-commerce giant Alibaba, based in Hangzhou, has already announced staff shortages and logistical difficulties will hit its first-quarter earnings.

Bloomberg said the staff crunch was likely to be felt more acutely by smaller, private firms that tend to rely on migrant workers.