Feb 13 2020
As the coronavirus (COVID-19) outbreak continues to dominate news headlines, IBISWorld has evaluated its potential impact on the Australian economy. According to IBISWorld Senior Industry Analyst Nathan Cloutman, COVID-19 is set to have a moderate impact on GDP this quarter. However, the economic fallout of the virus could significantly worsen in coming quarters if quarantine measures continue to disrupt economic activity, and infection rates continue to rise.
‘COVID-19 has the potential to hinder Australia’s economy, especially the education sector and export-focused companies. Travel restrictions and reduced consumption in China represent a major threat for Australia’s economic outlook,’ said Mr Cloutman.
Pressure on the education sector
The Federal Government’s travel ban has put pressure on Australia’s education sector, just as the 2020 academic year starts. Close to 100,000 international students from China are currently banned from entering the country until they have spent 14 days outside of mainland China. The Chinese Government has also cancelled the English exams that Chinese students need to sit in order to enter schools and universities overseas that were set to occur this month, further delaying when some Chinese students can begin studies at Australian universities.
China is a key source of international students and revenue for domestic universities. From the estimated 950,000 international student enrolments for the year through to November 2019, over one-quarter originated from China.
‘Considering that international students account for 24.8% of the $34.0 billion University and Other Higher Education industry’s revenue, any downturn in Chinese student numbers is going to put a significant short-term dent into the finances of several domestic universities,’ said Mr Cloutman.
If the coronavirus outbreak and the Australian travel ban continues into the longer term, the pressure on the education sector would intensify. In fact, the International Education Association of Australia suggests the sector could take a hit of between $6 billion and $8 billion if Chinese students cannot enrol for a further six months.
Export-focused businesses taking a hit
Companies that rely on Chinese demand for export commodities are also feeling the pressure, with agriculture and mining companies particularly exposed.
As quarantine measures and infection fears dissuade the Chinese populace from visiting restaurants, demand for premium, fresh Australian produce is falling. Seafood trade to China, which accounts for over 45% of exports in the Seafood Processing industry, has been significantly constrained in recent weeks, during a period that usually has high export sales due to Chinese New Year.
Exports of lobster have taken one of the biggest hits, with Australia’s biggest lobster exporter Geraldton Fishermen’s Co-operative telling fishermen to stop catching the shellfish in late January and reducing the price to effectively zero from the previous high of $105 a kilogram.
‘If COVID-19 continues to limit Chinese purchasing habits over the year, exporters of key agricultural products such as seafood, wine and fresh meat would see a significant drop in overseas revenue, due to China’s importance to these industries,’ said Mr Cloutman.
The coronavirus outbreak has also dented China’s manufacturing output, putting pressure on Australian companies upwards in the supply chain. Reduced output from China has put downward pressure on the price of iron ore and base metals, with global iron ore prices expected to fall by 16.0% in 2020.
‘If COVID-19 continues to limit Chinese steel output over the medium-to-long term, then iron ore companies like Fortescue Metals, BHP and Rio Tinto are likely to take a further hit,’ said Mr Cloutman.
IBISWorld reports used to develop this release:
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