Apr 09 2020
Leading industry research company IBISWorld has published an in-depth breakdown of the effect of the COVID-19 epidemic on every subdivision in the economies of Australia and New Zealand. This report, compiled by a team of senior industry analysts, classifies the level of disruption for each subdivision, and provides analysis on the key factors that will determine performance over the remainder of 2019-20 and beyond.
The worsening outbreak of COVID-19 over the first quarter of 2020 has had a significant and growing impact on international supply chains. Global imports from China over the two months through February 2020 were 4% lower compared with the same time last year. Even more substantially, exports plummeted 17.2% over the same period. Australia and New Zealand have significantly increased two-way trade to China over the past decade. Consequently, both nations have experienced significant supply and demand disruptions.
Overall, the virus’ impact on the Australian and New Zealand economies is expected to be negative, potentially leading to the lowest GDP growth in Australia since 1991-92.
‘IBISWorld has classified the degree of impact for each subdivision as low, moderate or high. The level of disruption is dependent on the degree of exposure to international trade, and the impact on business and consumer confidence,’ said Senior Industry Analyst Matthew Reeves.
Determinants of disruption
COVID-19 is expected to disrupt Australian firms both directly through quarantine measures, and indirectly through supply chain disruption. Key factors of disruption include demand for exports from key trading partners such as China and South Korea; port closures in affected countries; the global consumer demand environment; and supply chain disruptions in China and across its borders. Secondary effects on consumer and business confidence have also been felt in China as well as Australia and New Zealand. In some cases, industries in other countries have been so disrupted that the demand for Australian and New Zealand exports has been curtailed. Consumer spending and confidence have been particularly hampered in the most COVID-19 affected countries of China, South Korea, Italy and Japan.
‘Quarantine restrictions are physically preventing economic activity and spending, while factory closures are cutting demand for imports from Australia and wage income for households overseas,’ said Mr Reeves.
‘Additionally, Australia’s reliance on imports from overseas manufacturers could potentially lead to product and parts shortages for some subdivisions.’
The two sides of COVID-19
Some subdivisions, such as the Grocery, Liquor and Tobacco Product Wholesaling subdivision, are set to see an increase in demand from the effect of the COVID-19 outbreak. Similarly, operators throughout the food, beverage, sanitary and cleaning product supply chain have seen a significant increase in demand for products, as a result of COVID-19.
‘Although the virus has dented overall consumer confidence, many individuals are stockpiling goods such as pre-packaged food, soft drink and long-life milk. Wholesalers of other goods such as pharmaceutical products, hand sanitiser and toilet paper have benefited from higher consumer demand,’ said Mr Reeves.
State and federal governments, as well as non-government health organisations have stressed the importance of regular hand washing and cleaning of frequently used and touched objects and surfaces. This has driven demand for sanitary and cleaning products. Other industries may be suffering direct negative impacts but may see positive offsets, such as a rise in demand for repairs and maintenance services replacing new purchases.
Highly negatively affected subdivisions include Agriculture, Oil and Gas Extraction, Basic Material Wholesaling, Accommodation, and Air and Space Transport. China is now one of the largest export destinations for goods from Australia and New Zealand, and has become a key source of demand for many of the industries in these subdivisions. Reduced spending activity and port closures as a result of the outbreak of COVID-19 has reduced demand for exports.
‘Travel restrictions have had a severe impact on international airlines and hotels, with both drawing significant revenue from Chinese tourists. Close to 1.5 million and 500,000 tourists visit Australia and New Zealand respectively from China annually,’ said Mr Reeves.
Generally, service subdivisions have been only lightly affected by COVID-19. This outcome is because only a minority of the subdivision’s activity is directly exposed to international linkages such as export and travel. Other services such as those conducted by the Hairdressing and Beauty Services industry could be slightly negatively affected due to health concerns of being in an enclosed placed shared with many other people.
Subdued manufacturing activity is expected to result in reduced demand for iron ore and nickel. Gold miners are likely to benefit from a rising price for the precious metal as investors look to hedge against uncertainty in global equity markets.
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For more information, to obtain industry reports or to arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647