The march of the coronavirus may or may not accelerate as it spreads across the world, causing sickness and death, but the economic impact is already in Australia.
The fallout, in what is early days for the crisis for Australia, is adding more weight on the back of a weakened ad spend canary.
And it could be mid year before the trend starts to reverse. Along the way, Australia will skim near the definition of a recession, according to several market economists.
The first sectors to feel the pain are travel (Qantas, Sydney Airport, Flight Centre, Webjet), retail and education. They are missing the flow of tourists, and students, from mainland China.
“Many of these visitors, especially students, also brought many benefits to the real economy through their demand for local goods and services,” says Shaun Roache, the chief economist for S&P Global in Asia-Pacific.
“The affected sectors are labor-intensive. Services account for almost 80% of employment with accommodation and catering alone making up over 7%.”
The ratings agency has downgraded its full year economic growth forecast in Australia by one percentage point to 1.2% and, as a consequence, the unemployment rate will lift by 1% (to 6.3%), meaning another 100,000 plus out of work.
S&P says such low growth means a “vulnerable” Australia will “flirt” with recession.
Any rise in the number of jobless, many of them casual or part-timers in service areas, will further dampen consumer confidence.
Investment bank Goldman Sachs has also downgraded its 2020 growth forecasts for Australia, to 1.3% from 2.1%.
“While we don’t expect technical recessions in either Australia or NZ, in both economies this is now a very close call,” writes Goldman Sachs in a note to clients.
But the time to panic is a long way ahead, if we ever get there.
Dermot Ryan, portfolio manager at AMP Capital, said: “It’s important to stay calm. This too will pass.”
AMP Capital is currently forecasting two negative quarters in a row, which would mark the first recession in Australia since the early 1990s, followed by a bounce back in the second half of the year.
The bushfires gave the economy pause but this, say economists, was heading in the right direction as spending started again, boosted by rebuilding.
However, this will be offset from the impact of the coronavirus, as tourism dollars shrink, and consumers stop going to places with large numbers of people including restaurants and shopping centres.
“There are already plenty of anecdotes about restaurants closing from lack of customers,” says Diana Mousina, senior economist at AMP Capital.
“Perhaps some spending will be done online, but this only accounts for around 10% of total retail sales. For many parts of the retail sector it will feel like a recession.
“We expect annual retail sales growth to average around 2%-2.5% annually this year – well below the average of 3.4% last decade which was already much weaker than the 6.1% pa average for the 2000-2009 decade.”
Analysts at Citi say the tourism sector accounts for almost 10% of total retail trade.“If COVID-19 spreads across Australia, the uncertainty will likely cause consumers to further retreat,”write the Citi analysts in a note to clients.
“Reported stockpiling of pharmaceutical and toiletry goods (~9% of total retail trade) in late February and early March may provide a small boost, but overall spending is likely to be negatively influenced in coming months.”
Brian Wieser, global president, business intelligence, at media agency GroupM, says the outbreak means aspects of life and business will be altered in many countries with the possibility of a recession “realistic” at least in the short-term.
“Shifts in media consumption and other behaviours are important to monitor, and marketers need to be mindful of opportunities to service consumers that may follow along with the media owners they buy from and the societies in which they operate,” he says.
“Ad spending might fall, but it also may shift. Given the absence of near-term sales to be realised, advertiser willingness to spend may fall despite higher audience levels for some media (which, as we have noted previously are not generally correlated with ad spending within media).”
He says traditional television could fare relatively better because of the likely improvements in audience levels.
But outdoor advertising may be worse off with lower levels of foot traffic in many places.
“At the same, time we emphasise that spending on paid media will not necessarily correlate with spending by marketers on services, such as those provided by agencies,” he says
A big unknown, and an important one for Seven West Media in Australia, is the Tokyo Olympics due to start in July.
“The Olympics may still go forward, but also illustrate the importance in making back-up plans,” says Wieser.
“While the games are still moving forward at the present time, because so many marketers build substantial campaigns centered around the Olympics, it will be particularly critical for those marketers to establish potential back-up plans in the event the Olympics do not occur.”
He urges marketers to look for opportunities.
“A crisis such as this one will have many unfortunate consequences, but the changes in behaviors that will follow from it could create new opportunities for marketers to engage with all relevant stakeholders,” he says.
“If the choices they make resonate while the world works through the current environment, they and the world will hopefully come through it better positioned to thrive in the future.”
In Australia, a long line of companies have been alerting the market to the consequences of the coronavirus.
Analysts at UBS have been tracking these disclosures.
“Although we think the COVID-19 impact is likely to be temporary for most companies, we acknowledge the risk of financial distress to some companies from near-term earnings impacts,” the analysts write.
“With growing concerns over the spread of COVID-19 outside of China, financial markets are increasingly concerned the outbreak could have extended effects on both global supply chains and global demand.”
UBS analysed all the earnings calls, presentations and other ASX releases of ASX 200 companies. This table lists companies that had at least four mentions of "Coronavirus", "Corona" and/or "COVID":
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