Coronavirus is massive shock to China with growing flow-on impacts on Qld economy

Modern-day stoics such as Tim Ferriss recommend you avoid regular news updates as they can distract your focus and increase your anxiety. There is much truth in this, particularly on days like this when you learn the latest news about how coronavirus is affecting the Chinese economy. The Financial Times has reported China factory index hits record low on coronavirus (pay-walled). The chart of the Chinese Purchasing Managers Index (PMI) shows a very steep drop to a level below that seen during the 2008 financial crisis (see chart below).

PMI chart

In Queensland, we may end up being affected by a wider range of indirect impacts as a potentially contracting Chinese economy could reduce its demand for our resource exports. So far, we’ve seen major impacts on international tourism and international education, as well as on seafood and agricultural produce exports to China, but we could end up experiencing impacts via lower resource exports if the virus isn’t contained soon.

In a highly-informative ABC interview last week, Queensland Deputy Premier-Treasurer Jackie Trad noted Queensland Treasury is estimating the adverse economic impact of coronavirus on Queensland at up to $1.7 billion in the 2019-20 financial year. That’s around 0.4-0.5% of Gross State Product (GSP).* With the latest news out of China, Treasury might need to consider increasing that estimated upper-bound impact of coronavirus. Obviously, coronavirus is a threat to the state government’s budget, an issue I’ll cover in a future post.

The latest Chinese PMI data will very likely add to the rising anxiety in global financial markets which sold off equities and retreated to government bonds last week.** The Australian share market fell nearly 10% last week and the ten-year Australian Government bond rate fell to around 0.75%, according to Trading Economics.

Central banks around the world, including our own RBA, will need to cut rates soon to try to restore confidence. The RBA board is meeting Tuesday and may well cut the cash rate. Check out Pete Wargent’s Plunge Protection Team post for useful information on how the financial markets are reacting to coronavirus and expectations regarding future interest rate reductions.

Finally, I’ll be recording an update of my discussion with CCIQ on the impact of coronavirus on the Queensland economy tomorrow, so check out QEW Monday night or Tuesday morning to get the latest news. For my previous interview, see:

CCIQ Coronavirus interview – Chief Economist “very concerned” about potential impacts

*Note that, at the time of the mid-year budget update last December, Queensland Treasury was forecasting 2.5% GSP growth in 2019-20.
**This post contains general information only and is not investment advice.

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2 Responses to Coronavirus is massive shock to China with growing flow-on impacts on Qld economy

  1. Sarah says:

    Hi Gene, as someone who’s looking to buy a house in Brisbane, what impact do you think this will have on property prices in the next few months? Thanks!

    • Gene Tunny says:

      Hi Sarah, good question! We really need to wait and see how this evolves. Let me try to cover the potential impact on the property market in a future post. Thanks for the question.

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