Image Description: A map of the world on a blue grid background. Interweaving white lines connect seemingly random sections of the world to each other.
By Millie Muroi
Perth is one of the most isolated cities in the world. In the midst of what the World Health Organisation will probably term a ‘pandemic’, this perhaps provides some reassurance to us Perthites. Health professionals in WA ostensibly have everything under control, with a singular confirmed case of Covid-19 being flown in under strict conditions last week. So, have we gotten lucky?
While no deaths have been recorded in WA so far, and the risk of infection remains relatively low, our economy is showing symptoms of a slowdown. In a press conference earlier this month, Premier Mark McGowan said that WA’s economic and cultural ties with China were probably “the strongest in the western world”. This means that mining, travel, and education – some of our major sectors – which are heavily exposed to overseas demand, are at increasing risk as the coronavirus wreaks havoc in China.
Mining
The closure of Chinese factories and shortages in labour mean that demand for commodities such as iron ore and oil are on the decline. The chief executive of BHP – Australia’s largest company – warns that if the outbreak is not clearly contained within the March quarter, there will be downwards revisions in the company’s forecasted demand growth. The interim dividend for the firm was 8.5% below analyst predictions, indicating that investors may expect dented returns on some of their mining shares. The value of safe-haven assets thrives off uncertainty, so it is little surprise that gold prices have been cruising high lately. Perhaps lesser known is that coal exports are faring quite well. This is because coal fuels power stations; a nation’s electricity supply can’t just suddenly be switched off.
Travel
Meanwhile, travel bans have been enforced on most international travellers who have transited mainland China. This delivers a blow to tourism, since in terms of total visitor spend, China comprises WA’s largest international market. Across the world generally, wanderlust has been subdued by fears of infection. Airlines in particular have faced heavy headwinds, with QANTAS and Jetstar cancelling several flights to the Asia region. Analysts at AirInsight calculated that the SARS outbreak cost airlines $10 billion, with Bloomberg commenting that this was at a time when the world was less interlinked. This suggests that revenues for Australian travel companies will be significantly dented until further assurance can be provided to travellers.
Education
While most of us bemoan the return of the university semester, some of our international students have been hit by a travel ban which means that they are unable to enter or re-enter the country. From a purely economic view, this will exert some negative impacts on university revenues. This is because international students comprise over 20% of UWA’s student cohort, with half of these students originating from China. The chairwoman of Universities Australia states that Chinese students contribute $40 billion annually to the Australian economy. Their spending supports small businesses, tourism operators, and local shops, meaning that their absence will also engender some contraction in local retail.
Broken supply chains
Speaking of which, a number of local businesses have reported shortages in their offerings. From musical instruments, to hardware components and bicycle parts, disruptions to the global supply chain have brought about delays, and miniscule holes are emerging on store shelves in WA.
Because of globalisation, countries have become increasingly integrated, relying on one another to produce different components and assemble different stages of final goods. Factory closures in countries such as China mean that inputs needed for construction and manufacturing have been stifled. As a result, industries such as building and manufacturing in Australia are facing curtailment in their productive capacity.
So, does this affect you?
On an individual level – especially as students – the effects of the Coronavirus are likely quite trivial. Perhaps you choose not to go on that holiday this year, or perhaps you swerve on investing in iron ore stocks for the upcoming quarter. Right now, in WA, the whole is greater than the sum of its parts. In other words, the impacts of Covid-19 are most acutely felt by firms, and on a macro level. Even in our isolated corner of the world, it appears the economy is not immune to a recessionary infection.
Image courtesy of TheDigitalArtist on Pixabay.