Australia can expect an economic shock.
Camera IconAustralia can expect an economic shock. Credit: Supplied/Supplied

Coronavirus: Australia and the world can expect an economic shock

Natalie HordovWestern Suburbs Weekly

WA and the world economy is set for some short-term pain as a result of the coronavirus according to international economist Jonathan Pain.

Speaking at the UDIA industry lunch: Perth in a global context, the author of The Pain Report said he was not going to sugar coat the reality and ramifications of the event.

“I have seen estimates that 69 per cent of the Chinese economy has effectively been shut down,” Mr Pain said.

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“I’ve seen estimates that up to 400 million people in China are in some form of coercive quarantine.

“With China comprising 17 per cent of the global economy, effects are to be expected.”

Mr Pain said the effects were already being felt with some international car manufacturers suspending operations as they were running out of components supplied by China.

“The Japanese car manufacturers are all curtailing production and we know that many German manufacturers are saying they’ve only got one more week of inventory and if supply lines from China are not opened again they also will start shutting down production,” he said.

“This is a global cardiac arrest and we need to face the economic reality of it.”

Mr Pain said China would see a contraction in first quarter GDP this year and it was going to be big one.

As China was Australia’s largest trading partner, Australia too would see a first quarter contraction that may trickle into the second.

“Which may then begin to challenge one economic record that we are most proud of, being a nation that has gone 21 years or so without experiencing a recession,” he said.

“That is the economic reality of the next few weeks and months and perhaps quarters ahead.”

Mr Pain said state and local governments need to open the fiscal stimulus pipeline to cope with the economic shock.

“I guarantee when in a couple of months time we see confirmation of the shock that I’m describing, I don’t want anyone in Canberra to say we didn’t see it coming; it’s coming, get ready and act,” he said.

“Unfortunately it arrives at a time that our nation has been decimated by bush fires and before that drought and now extraordinary flooding.

“The good news is the Reserve Bank has responded with lowering rates and we are seeing a housing recovery on the eastern seaboard.”

WA still faced challenges with weakness in business investment, extremely soft housing consumption as wages had remained stagnant and weak population growth, with interstate migration in the negative.

“We are beginning to see an improvement in those numbers and some improvement also in overseas migration,” Mr Pain said.

“At the end of the day it’s a numbers game.

“If you really want growth you’ve got to have population growth, it’s an essential part of that arithmetic equation.”

Overseas migration offered some opportunities, but Mr Pain said most people chose to live in Sydney and Melbourne when moving to Australia and WA needed to do more to win its fair share of migration.

Looking to the future Mr Pain suggested Australia and WA needed to reduce its reliance on China, in terms of both supply and demand, and look to other “extraordinary nations” like Vietnam, Indonesia, Taiwan and India.

There was also a need to showcase enviable assets.

“You’ve got a world-class education and tourism related experience, I think those are the assets you really need to leverage,” he said.

“I think for many people in the world Australia is still seen and perceived as a safe haven, we have a history of economic and political stability, we’re the envy of the world.”

He said an event such as the coronavirus served as a sharp reminder to people that places like Australia were very attractive destinations.

When asked about investment opportunities in Australia, Mr Pain singled out Darwin.

“I think you’re going to see greater US troop deployments over the years ahead in the NT and this region of world, and I think Darwin will be the beneficiary in the next little while,” he said.

“Maybe buy an apartment in Darwin.”

Baby boomers selling up over east offered another opportunity for WA.

People were looking at the quality of life in Sydney and Melbourne with congestion and property prices through the roof.

“People are retiring, downsizing and moving away from the congestion,” Mr Pain said.

“Most of them are going up the central coast of NSW or up to the Gold Coast and places like that.

“WA could capture a big share of that type of shift in population, but the biggest problem is airfares; they’re too expensive, I’m not sure how you’d resolve that, but they’re a major challenge.”

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