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In its latest report published during Wednesday’s Asian session, the Australia and New Zealand Banking Group (ANZ) mentions that the coronavirus outbreak will weigh on Australia’s first-quarter (Q1) GDP figures.

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We have revised our preliminary estimate of the impact of the coronavirus and now expect it to take around 0.5ppt off Australia’s GDP in Q1. Along with a small hit from the bushfire impact, we estimate that GDP will now fall 0.1% q/q in Q1.

The economic impact of the virus has been brought into sharper focus by the measures taken to limit the spread. The understandable travel ban in place in Australia on all foreign nationals who have been in China, as well as airline cancellations, will act to sharply reduce the level of tourist arrivals.

There is a very wide range of uncertainties around the outlook. The virus’s timeline, the behavior of non-China tourism, the impact on broader Chinese and global growth, and the degree to which Australian’s limit their travel abroad.

While the hit to near-term growth is large, we expect the number of arrivals from China to turn around in Q2, with the rebound in tourism adding to growth in Q3 and Q4. Consequently, the impact on year-end growth is likely to be small.

For the RBA, a case can be made for looking through the immediate impact on demand, given the likely rebound later in the year. 

Our view, however, is that while the economic impact of the coronavirus does not drive the case for further easing, it adds to the weak tone in the economy and suggests further rate cuts are likely this year.