The coronavirus will tip Australia into recession. So said University of Wollongong acting vice-chancellor Alex Frino.
The Professor of Economics made the claim in this opinion piece he has written for the Mercury..
"Will the Australia economy tip into recession this year? Unless a miraculous "black swan"' comes out of nowhere to work against the coronavirus, there is no doubt in my mind that it will," Professor Frino wrote.
Coronavirus can tip Australia into recession - By Alex Frino
The Reserve Bank's decision this month to keep interest rates on hold suggests that it feels the economy is sailing pretty well and there is no need for economic stimulus in the form of interest rate cuts.
I was quite surprised with this response, given the damage the coronavirus and the subsequent ban on travellers from China is doing to the Australian economy.
Let's take the Higher Education Sector as an example.
The sector has enormous exposure to the Chinese market, which potentially accounts for almost two thirds of the export income that Higher Education generates for Australia.
There are more than 150,000 Chinese students planning to study at Australian universities this year, and closing the border to these students because of the coronavirus is going to have a major impact.
Universities are, of course, working to allow Chinese students to progress their studies on-line despite the travel bans.
However, this potential solution is fraught with difficulties - not the least being the issue of Chinese firewalls that limit access to international websites, and the general aversion of international students to online solutions. They want an international study experience with all that involves - not to be closeted in their home country on their computer.
One of the big uncertainties in coming up with viable solutions is the unknown amount of time it will take for the epidemic in China to settle down and for our borders to reopen to flights from China.
If the SARS epidemic of 2003 is any indication, we can expect the virus to remain infectious at high levels until at least June. This means the first half of the year will be pretty much wiped out for international student arrivals from China and the education providers who would be teaching them.
The scale of the problem is enormous. Chinese students account for approximately 60 percent of overseas students in Australian higher education. The latest numbers we've seen suggest two thirds of those students, around 100,000, are not currently in Australia.
In my opinion, despite the best efforts of universities, the bulk of those student are unlikely to undertake their study in first semester. Some of them may also be lost to Australia permanently.
Last year, the Higher Education sector generated $32.3 billion in export income for Australia. If we add, say, another 75% to that, representing what international students spend in Australia on accommodation, food and beverage, entertainment, transport and so on, the total income generated is in the order of $56.5 billion.
Assuming 60 percent of that figure relates to students from China, then Chinese students' contribution to the Australian economy is in the order of $33.9 billion. If only half of that export income is wiped out because of the coronavirus impeding study at Australian universities in the next six months, then we can expect an economic hit of approximately $17 billion.
Australian Gross Domestic Product for 2019 was approximately $1890 billion, and economic growth is currently running at about 1.8%, or $34 billion.
So a coronavirus hit on international students that wipes out a conservative $17 billion from Higher Education is a loss of 0.5% - or half of one percent of GDP.
Sound small? Think again. As I said, GDP growth is only running at about 1.8% so such a hit on the Higher Education sector alone will wipe out almost one-third of our economic growth.
By itself, perhaps this will not create a recession, but other sectors, particularly tourism and international trade, are also being affected by the coronavirus.
Will the Australia economy tip into recession this year? Unless a miraculous "black swan"' comes out of nowhere to work against the coronavirus, there is no doubt in my mind that it will.
This article is the personal view of the author and does not necessarily represent the view of the University of Wollongong.