At the time of publication, the coronavirus Covid-19 – that first appeared in December in Wuhan, China – has infected more than 55,000 people and killed more than 1000. (For more see our first Industry Briefing here.)
Coronavirus (COVID-19) is part of a large family of coronaviruses found in animals and humans. Infections from these viruses can range from a common cold to severe diseases like Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS).
At the Munich Security Conference in February, World Health Organisation director-general Dr Tedros Adhanom Ghebreyesus said it was encouraged by the steps China had taken to contain the outbreak, even though those steps had come at great cost.
Tedros said: “For too long, the world has operated on a cycle of panic and neglect. We throw money at an outbreak, and when it’s over, we forget about it and do nothing to prevent the next one.
“The world spends billions of dollars preparing for a terrorist attack, but relatively little preparing for the attack of a virus, which could be far more deadly and far more damaging economically, politically and socially.
“This is frankly difficult to understand, and dangerously short-sighted.”
China’s containment efforts have seen its economy largely come to a standstill. A report in The Australian Financial Review said many investors had “blind optimism” about the damage Covid-19 will have and that “anyone on the ground in China ... knows this is wishful thinking”.
On 14 February, ANZ Greater China & China Markets chief economist Raymond Yeung revised the bank’s projections of 5.0 per cent gross domestic product (GDP) growth in Q1 to between 3.2 and 4.0 per cent.
The virus continues to disrupt production chains and increase supply shocks in the country’s economy, Yeung said.
“ANZ Research’s previous estimate on the impact of the virus was based on the assumption factories can resume production on February 10. That no longer holds true.
“From an economic point of view, the virus outbreak is an external shock rather than a structural issue. The impact should be one-off.
“It's likely these new developments will see China’s government step up to secure economic growth and mitigate financial risks.”
Yeung said ANZ Research expects an economic rebound as the situation stabilises, but gauging the timing of it “remains difficult” and was “unlikely to be spectacular”.
“In 2003, China witnessed a post-SARS economic recovery in the second half of the year. However, the economy was in expansion mode in the early 2000s and the global environment was favourable to an export-oriented economy. Now China’s growth momentum is on a declining trend.
“If Q1 GDP growth can attain 3.6 per cent as the mid-point of the ANZ Research forecast, the economy will still need to achieve average growth of 6.4 per cent from Q2 to Q4 in order to hit 5.8 per cent for full-year growth. This is difficult but not entirely impossible.”
Coles main fridge supplier based in Wuhan
In announcing the company's half yearly results, Coles Group CEO Steve Cain said Covid-19, the recent bushfires and floods would impact the progress of its five-year growth strategy. The company's main refrigeration supplier is based in Wuhan, causing a slowdown on Coles' store refurbishment program.
The coronavirus has also forced Coles to delay opening its Shanghai office. Cain told The Australian Financial Review: "You can't get anything into the country at the moment ... if everything goes to plan China should be starting to get back into business at the end of March, if it doesn't we'll have to think about plan B."
AustCham Shanghai polls impact
A spot poll, by the Australian Chamber of Commerce in Shanghai (AustCham Shanghai), of 100 Australian companies operating in China revealed nearly all (92 per cent) thought the virus would have a negative impact on their Q1 revenue forecasts. The poll was conducted in the second week of February and capped at 100 submissions.
The Chamber’s CEO and executive director Jack Brady said it was too early to understand the scale of the impact on business in China, but the country was resilient and the market would remain hungry for Australian goods and services.
Brady said the majority of Australian organisations were reporting varying levels of disruption to normal trading activities and expect the impacts of the outbreak to continue for 3-6 months. Most are implementing work from home policies and conducting enhanced screening and health protection measures for their staff when at work.
“For those businesses including factory and warehouse workers where working from home is not possible, we understand there is increased disruption to normal business.
“When normal trading returns, Australian organisations need to be ready to expand back into the market. Australia has a strong trading relationship with China and much to offer. This will only continue when things normalise.
“The Chinese Government and the Shanghai Government have already announced a number of measures to assist business, particularly small and medium enterprises. We will be working with the Shanghai Government and Chinese authorities to support business in this difficult time,” Brady said.
The survey results were:
- 92 per cent of organisations reported that the coronavirus outbreak would have a negative impact on their revenue forecasts for the first quarter of this year;
- 57 per cent reported a very negative impact to first quarter revenues of a decrease equal to or greater than 20 per cent;
- 35 per cent reported a somewhat negative impact to first quarter revenues of a decrease of between 10-15 per cent;
- 87 per cent of organisations reported that the coronavirus outbreak would have a negative impact on their revenue forecasts for the calendar year 2020;
- 27 per cent reported a very negative impact to 2020 annual revenue forecasts of a decrease equal to or greater than 20 per cent;
- 60 per cent reported a somewhat negative impact to 2020 annual revenue forecasts of between 10-15 per cent;
- the largest reported organisational concern is the safety and health of employees. This was closely followed by operational concerns such as lower sales, higher fixed costs and impacted profitability;
- an overwhelming majority of those who completed the survey did so from their homes (88 per cent), due to the rapid adoption of work from home practices;
- for those organisations opening workplaces, 64 per cent of organisations polled have introduced additional health and hygiene measures in the office including daily temperature checks, mandatory mask wearing and hand washing;
- 36 per cent of respondents reported that they are reviewing their China strategy as a direct result of the coronavirus outbreak; and
- the majority of respondents (68 per cent) reported that they are not seeking specific government support at this stage.