Queensland Economy Watch

Despite all the bad news on coronavirus, the RBA Board, which left the cash rate unchanged yesterday, and financial markets, which are currently rallying, seem pretty relaxed about the potential economic impacts of the virus. While equity prices are lower than they were before the news broke about coronavirus, markets don’t appear too worried about the potential economic downside (see this AFR report ASX to rise amid global rally). Of course, the markets could end up being badly mistaken.

Coronavirus will definitely be a major issue covered in my upcoming Queensland: Hot or Not presentation at the Brisbane Club. We need to be concerned about the impact of coronavirus on our tourism and international education sectors and its impact on the demand for our coal through its impact on the Chinese economy. There have been falls in prices for Australian coking coal futures, but nothing beyond what you might see with normal market volatility yet (see chart below).

The Queensland Government is rightly concerned about the impact of coronavirus on our tourism sector, and Queensland Tourism Minister Kate Jones has observed (as reported by ABC News) that Cairns and the Gold Coast will be most affected:

“In a Queensland context we know Gold Coast and Cairns will be hardest hit when it comes to Chinese travellers, they represent such large contributions to tourism market. I’ve been in constant contact with Gold Coast tourism, they’re already rolling out their campaign,” she said.

Regarding the impact on the Queensland economy as a whole, consider that, as reported by Tourism & Events Queensland in its International Tourism Snapshot, Queensland’s 496,000 Chinese visitors spent $1.552 billion in the twelve months to 30 September 2019.* Let’s say we lose one month’s worth of Chinese visitors to Queensland, which would amount to a loss of around $130 million of spending. According to Tourism Research Australia estimates, the Gross State Product (GSP) impact of a change in tourism spending is almost one-for-one in the short-run, taking into account indirect or multiplier impacts. In March quarter 2020, Queensland’s quarterly GSP should be around $97 billion, so the potential impact of coronavirus via the international visitor channel could be around -0.1% of GSP.

So coronavirus shouldn’t derail the state economy, unless: a) travel restrictions remain in place for a prolonged period and the impact on our tourism sector is ongoing; and/or b) its impact on the Chinese economy is much greater than currently expected and this substantially affects global growth and demand for Queensland coal. Let’s hope that doesn’t turn out to be the case.

*This figure appears to include spending by Chinese international visitors for education.