The current situation
As of 9 March 2020, a total of 45 countries informed the World Health Organisation (WHO) of additional health measures they have implemented in relation to Coronavirus (COVID-19), and provided the public health rationale for these measures. Measures that restrict the movement of people during this outbreak should be proportionate to the public health risk, short in duration and reviewed regularly as more information about the virus, the disease epidemiology and clinical characteristics becomes available.
Of the countries with the most cases, China is bringing its epidemic under control and there is now a decline in new cases being reported and an increased recovery rate. The Health Minister of the Republic of Korea recently announced they were hopeful they had reached their peak of cases. In Iran and in particular Italy, cases have continued to increase with Italy this week announcing a series of travel restrictions and closures across the country, to try and contain the spread of the virus.
The Australian Government is also restricting travel to Australia, from high-risk countries, announcing on 11 March 2020, that travel restrictions will be introduced for travellers arriving from Italy in addition to those already imposed for travellers from the Republic of Korea, mainland China or Iran. Australian nationals traveling from these countries will also be subjected to a mandatory 14-day quarantine upon their return.
The Australian Government provides a daily update on its website below of the latest developments of COVID-19.
Across the world, there have been more than 117,000 confirmed cases of COVID-19 and more than 4,200 reported deaths. As of 11 March 2020, there were 112 confirmed cases of coronavirus (COVID-19), including 3 deaths in Australia.
COVID-19 is the major uncertainty in the global economy, with the potential to trigger a worldwide recession. The path of the disease and its economic consequences are highly uncertain. Most likely, the world will see rolling recessions as the disease spreads to different areas, with economic recovery as the local epidemics die down.
The economic impacts of quarantines and travel restrictions are probably more severe than the direct effects of death and illness. Thus, we are trading off health concerns against economic growth. So far, countries that have been hard hit have chosen to protect lives through quarantines and other restrictions, such as limiting public gatherings. Countries in the early stages of epidemic—including the United States—are delaying such action until sickness spreads widely.
How long the epidemic will last is guesswork, but past diseases seem to follow a pattern of the worst epidemics ending quickly, while milder outbreaks persist and then flare up again.
Short economic downturns are likely in each country affected, though on different timelines. The evidence from China suggests manufacturing and transportation are recovering. If this pattern holds, then we’ll see about one quarter of decline, not the two quarters we usually use as a benchmark of recession. There may, however, be lingering effects.
On the demand side, spending will be depressed as people avoid shopping malls, theatres, restaurants, licensed venues and as various restrictions (quarantines, travel limitations, etc.) are imposed to contain the virus. People who are unable to work for these reasons will have less money to spend, though people with stable incomes will end the month with more money available to spend after the epidemic downturn is over.
On the supply side, many companies are not able to get shipments from China, and soon from Italy’s manufacturing base. These supply chain effects will trigger additional supply restrictions, as well as reinforced demand reductions as workers are sent home for lack of raw materials to process. Chinese factories produce medical supplies, aggravating the shortages triggered by the surge in medical needs.
Thus, 2020 may be a year with rolling slowdowns, pulling aggregate economic activity down worldwide.
Early indications of COVID-19’s impact on the Chinese economy are worse than initially forecast. Surveys of China’s manufacturing and services sector plunged to record lows in February, automobile sales sank a record 80 percent, and China’s exports fell 17.2 percent in January and February. The official data confirmed a widespread slowdown in economic activity foreshadowed in low pollution levels and depressed shipping traffic, among other informal barometers. Analysts have sharply revised down estimates of Chinese growth, with many now predicting a drop in first quarter GDP, the first contraction since China began reporting quarterly data in 1992. As COVID-19 spreads, China’s economic recovery will be challenged as demand from other countries drops as they cope with the virus.
Europe and Japan are likely already in recession territory given their weak fourth quarter performance and high reliance on trade. While the United States entered the crisis with a tailwind, some analysts are forecasting a contraction in U.S. GDP in the second quarter. Estimates of the global impact vary: early last week, the Organisation for Economic Co-operation and Development (OECD) predicted that COVID-19 will lower global GDP growth by one-half a percentage point for 2020 (from 2.9 to 2.4 percent); Bloomberg Economics warns that full-year GDP growth could fall to zero in a worst-case pandemic scenario.
The COVID-19 outbreak has generated both demand and supply shocks reverberating across the global economy. Among major economies outside of China, the OECD forecasts the largest downward growth revisions in countries deeply interconnected to China, especially South Korea, Australia, and Japan. Major European economies will experience dislocations as the virus spreads and countries adopt restrictive responses that curb manufacturing activity at regional hubs, including in Northern Italy. As a result of depressed activity, the United Nations projects that foreign direct investment flows could fall between 5 and 15 percent to their lowest levels since the 2008-2009 global financial crisis.
At the sectoral level, tourism and travel-related industries will be among the hardest hit as authorities encourage “social distancing” and consumers stay indoors. The International Air Transport Association warns that COVID-19 could cost global air carriers between $63 billion and $113 billion in revenue in 2020, and the international film market could lose over $5 billion in lower box office sales. Similarly, shares of major hotel companies have plummeted in the last few weeks, and entertainment giants like Disney expect a significant blow to revenues. Restaurants, sporting events, and other services will also face significant disruption. Industries less reliant on high social interaction, such as agriculture, will be comparatively less vulnerable but will still face challenges as demand wavers.
It is likely that many countries will announce stimulus packages to boost growth in the latter part of 2020 as the COVD-19 outbreak is brought under control.
To date, national governments have announced largely uncoordinated, country-specific responses to the virus. In China, officials announced billions in special-purpose loans to companies facing liquidity constraints as well as financial support to specific sectors such as aviation. In the United States, the Federal Reserve cut the policy rate in an emergency action on March 3, and on March 9, in coordination with other U.S. bank regulators, it encouraged financial institutions to “meet the financial needs of customers and members affected by the coronavirus,” a move aimed at supporting financial conditions to prevent the growth shock from turning into a broader financial crisis. On March 9, the Federal Reserve Bank of New York also announced expanded overnight repurchase operations by $50 billion to avoid a deeper credit crunch.
The European Central Bank and Bank of England are expected to take action when their monetary policy committees meet later this month. On the fiscal front, President Trump previewed his administration’s plans to seek a payroll tax cut and assistance for impacted hourly workers and industries. Countries announcing fiscal measures just this month include Japan ($9.6 billion, or 0.19 percent of GDP), South Korea ($9.2 billion, 0.56 percent of GDP), and Italy ($4.1 billion, 0.20 percent of GDP). The adequacy of such spending will depend on the virus’s path as well as the effectiveness of other measures to contain negative spillovers from the growth shock.
In terms of coordinated action, on March 6, the G20 finance ministers and central bank governors pledged to take “appropriate” fiscal and monetary measures but made no specific commitments. On a March 3 phone call, G7 finance ministers reaffirmed their “commitment to use all policy tools” but did not outline specific steps. For their part, the International Monetary Fund and World Bank last week announced the availability of $50 billion and $12 billion in financing, respectively, to support low income and emerging market economies’ responses to the virus.
The IMF’s Chief Economist has urged policymakers to implement “substantial” fiscal and monetary policies to help consumers and businesses cope with the economic harm of the coronavirus outbreak. She said governments should consider measures like cash transfers, wage subsidies or tax relief, while central banks should be prepared to provide liquidity to banks and companies, as the epidemic disrupts supply chains and consumer demand around the world.
In the United States, President Trump has announced a stimulus package including a payroll tax cut and other measures to help companies. In addition, US private health insurers agreed to extend COVID-19 treatment cover in all of their plans and waive co-payment fees for testing.
A report in the Australian newspaper on Monday 9 March said the Australian Government was planning measures worth about A$10 billion ($6.6 billion) to combat the economic impact of the coronavirus, abandoning plans for a budget surplus in the current fiscal year.
Prime Minister Scott Morrison followed this up on Wednesday 11 March 2020 by outlining the Government’s $2.4billion package to help tackle the coronavirus outbreak, noting it will be used to help drive programs and support the wellbeing of Australians. Also on 11 March 2020, the South Australian (SA) Government announced its $350m stimulus package in response to coronavirus outbreak. SA Premier Steven Marshall said the package would include current infrastructure projects being brought forward, as well as new projects around road maintenance, housing, tourism and health.
Planning for the impacts
While there remains much global uncertainty and the economic outlook appears bleak, there are a number of things we would suggest Australian wine businesses consider in preparing for the ongoing implications of COVID-19: