Impact of Novel Coronavirus (2019-nCoV)

Economic and financial perspectives

• Novel (new) Coronavirus pneumonia (NCP): Since the world was alerted to the outbreak in mid-January, metal and energy prices have fallen 10-15 per cent but global sharemarkets remain supported.

The coronavirus outbreak has affected global economic activity especially travel, leisure, mining and energy sectors.

Background

• The novel coronavirus outbreak began in a seafood market in Wuhan, China in late December 2019. It is believed the virus was passed from bat (or snake) to human. The South China Morning Post issued a report on January 1, “China shuts seafood market linked to mystery viral pneumonia outbreak.”
• On January 5 there were only seven references in world print media to ‘coronavirus’. References averaged around 200 a day from January 9-16. World consciousness of the virus increased from around January 20. On January 30 the World Health Organisation declared the novel coronavirus a global health emergency.
• The latest coronavirus has been likened to the SARS outbreak that occurred over 2002/03.
• On February 9, the New York Times cited China’s National Health Commission as saying that the number of confirmed infections stood at 37,198. “Eighty-nine deaths and 2,656 new cases were recorded in the preceding 24 hours, most of them in Hubei Province, the heart of the outbreak.” The SARS outbreak killed 774 people.
• The World Health Organization (WHO) releases Situation reports each day. (https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports)
• The US Centres for Disease Control and Prevention have released detailed fact sheets on the virus. (https://www.cdc.gov/coronavirus/2019-ncov/about/index.html).
• Worldometer publishes statistics that tracks the coronavirus (https://www.worldometers.info/coronavirus/)

Impact

• On the prospect of reduced travel activity with China, travel and leisure stocks have fallen on global sharemarkets. And metal and energy prices have eased on the prospect for weaker Chinese economic activity, at least in the short term
• Since January 17, oil prices have fallen by 14 per cent while copper has fallen around 10 per cent. The Aussie dollar has fallen by around 3 per cent.
• But more broadly Chinese monetary stimulus has also comforted investors. And US$10 billion of fiscal stimulus to assist businesses was announced on the weekend. US and European sharemarkets were at record highs on Thursday. On Friday global sharemarkets eased as investors booked profits. The pan-European STOXX 600 index fell 0.5 per cent. The US Dow Jones lost 277 points or 0.9 per cent. The S&P 500 and Nasdaq indexes both lost 0.5 per cent.
• Over the week the All Ordinaries index was flat and the ASX 200 rose by 0.1 per cent. In the US the Dow Jones rose by 3 per cent, the S&P 500 rose 3.2 per cent and the NASDAQ rose by 4 per cent.

What are the implications for interest rates and investors?

• The Reserve Bank has estimated that the coronavirus could trim 0.2 percentage points from Australian economic growth in the March quarter. But the Reserve Bank has warned that it is too early to determine the full impact on domestic and global economic activity.
• Investors are pinning their hopes that the coronavirus would provide a short, sharp shock for the Chinese and global economies followed by a ‘V-shaped’ recovery. Of course, this remains to be seen.
• The key short-term impact on the Australian economy is on tourism and education. While there is concern about the impact on mining and energy sectors, Chinese authorities are making concerted efforts to support the economy in the short-term
• Over the past year 1.46 million Chinese tourists came to Australia. Back in 2002/03 annual Chinese tourist numbers peaked in March 2003 at 198,500, fell to 163,700 in August and then recovered to peak again in May 2004.
• Over the past year almost 900,000 Aussies travelled to China and Hong Kong. Some of the Aussie tourists will switch travel to other countries or decide to travel domestically instead. And the latter will especially be given a boost with the Aussie dollar currently near 11-year lows.
• In terms of education, universities and colleges are actively trying to ensure that more courses can be undertaken remotely, allowing Chinese students to engage with lectures and tutorials online. With many semesters beginning in March, the question is how quickly the universities can respond.
• There are signs that the number of cases of coronavirus has stabilised, but the WHO has warned that people should not become complacent.
• While the impact of the latest coronavirus could be similar to the 2002 SARS outbreak, China is far more engaged with the global economy so the impact of supply chains could be more significant.
• Still, widespread use of the internet has meant that Governments and companies have responded to the outbreak far quicker than in 2002. And Chinese authorities are applying massive fiscal and monetary stimulus to support the economy.