Six reasons why coronavirus will kill the Australian economy

First, it is the timing of the outbreak. We think it fair to assume that cold has at least some impact on the virus spread:

But because it has begun in the north hemisphere winter, it will largely be over there by April/May.

That puts the global growth shock in Q2 amd Q3, just when the pandemic most likely causes Australian shutdowns during the southen hemisphere winter.

In short, we’ll be enduring both physical and financial virus shocks simultaneously.

Second, China is not going to rebound fast. As the global recession transpires, China will be held back through its external sector, as well as its own sturggles to revive domestic demand. Bulk commosity prices will get plastered through Q2 and possibly Q3 as well.

Third, tourism and education are more important to Australia than other economies.

Fourth, the Aussie property bubble has re-inflated just in time for a major confidence and unemployment shock, not to mention physical shutdowns over winter. And a possible interest rate spike in offshore funding if, as we suspect, a second round shock awaits in credit markets.

Fifth, we have almost no monetary ammunition left and little fiscal to boot (according to ScoMo).

Sixth, a deeply corrupt, stupid and policy-barren government rules the land, with a proven track record of butchering national interest emergencies.

Yeh, we’re fooked.

David Llewellyn-Smith
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Comments

  1. https://www.theguardian.com/world/2020/feb/26/wuhan-nurses-plea-international-medics-help-fight-coronavirus
    This suggests things are pretty bad in Wuhan.

    Two very good posts you all need to read if you have not already done so. They have some practical advice, and are much better than anything on MSM.
    https://virologydownunder.com/so-you-think-youve-about-to-be-in-a-pandemic/
    https://virologydownunder.com/past-time-to-tell-the-public-it-will-probably-go-pandemic-and-we-should-all-prepare-now/

    Hard to know how this will compare to 1918
    Much more mobile population = faster spread
    Much older population
    Much more diabetes and obesity …..
    MUCH less resilient psychologically
    Australia much less self-sufficient

    We didn’t have anything to treat ‘flu in 1918.
    We don’t have anything to treat COVID-19 100 years later.

    Sobering
    https://www.smh.com.au/national/virus-emergency-blueprint-australia-pulls-trigger-on-pandemic-plan-20200225-p54490.html
    https://www.smh.com.au/national/states-pandemic-playbooks-reveal-plan-to-combat-covid-19-20200226-p544nv.html
    There could be a demand for 650,000 ICU admissions in the most severe scenario.
    With SARS, some patients needed many weeks in ICU.
    But lets say average 7 days = 4,500,000 ICU bed days.

    Sure we won’t need them all the same time – that is the point of trying to slow this down and get a broader but falter peak (although we won’t be able to totally smooth the demand curve).

    There are about 2,000 ICU beds in public and private hospitals combined (I expect the government would take control of the private hospital facilities)
    = 730,000 bed days pa

    So there will need to be some rationing – I suspect age-based.

    There is limited scope to increase ICU resources – industry has “just in time”, health has “just enough” – these are very expensive resources, and no one wants to pay for more than necessary.

    This assumes
    1. No other patients going to ICU – no bypass surgery, no neurosurgery, no trauma…
    2. No shortage of consumables
    3. No staff sickness, absenteeism and al beds able to be utilises
    4. None of those casually employed health staff decide “Hey, I’m casual”

    So worst case is very very bad – much worse than 1918.

    One of the most sobering things about this has been the way governments have responded.
    The Chinese response was extraordinary (not seen for 500 years) in January. At the time, that was highly disconcerting to many of us.
    Western governments (esp 5 Eyes) have been very coordinated in their response to this
    1. Coordinated in quarantining China and ceasing scheduled flights
    2. Coordinated in evacuating their citizens from Wuhan
    3. Coordinated in evacuating their citizens from the Diamond Princess
    4. Coordinated in the official announcements and release of plans all round the world the last 24 hours

    You may suspect that such coordination reflects a significant event.

    • From Steve’s post above. The Sigapore government is proactive in its dealing with the pandemic and the coordination between government agencies is really impressive. These measures must be adopted here immediately.

      • The only measures of substance adopted here will be the importation of more vibrants. It’s an obvious response.

          • lower teh rates and open teh gates not enuf to fix thing anymore?

            Maybe Phil can use newly printed QE money to buy homes and apartments – gotta keep house prices high!

      • Which goes to show even in warmer weather this virus cannot be halted in its tracks. Id be careful assuming this only thrives in the cold.

    • And both sides of politics want to import more elderly people as well as smokers and others of dubious health status.

    • And both sides of politics want to import more elderly people as well as smokers and others of dubious health status.

    • Best Option ?
      Get in and get it early as possible, if you have complications requiring hospitalisation or worse ICU then there will still be beds, staff and drugs available.
      Yes you might get it again later as some reports indicate, but getting infected early might be the best option.
      The virus isn’t going to disappear, it will linger around for a fair while, example 1 to 2 years.
      Essentially you wont be able to dodge it, until a vaccine, if possible, becomes available.

  2. “But because it has begun in the north hemisphere winter, it will largely be over there by April/May.”

    That’s a huge call.

    https://www.cdc.gov/flu/pandemic-resources/1918-commemoration/three-waves.htm
    “There were 3 different waves of illness during the pandemic, starting in March 1918 and subsiding by summer of 1919. The pandemic peaked in the U.S. during the second wave, in the fall of 1918. This highly fatal second wave was responsible for most of the U.S. deaths attributed to the pandemic.”

      • It is extremely unlikely that people will get reinfected over a short period of time. Immunity will be protective for a while, but we don’t now how long yet. being re-infected.

        They are probably doing NAAT (nucleic acid amplification testing). These can find very low numbers of virus particles. and the test can remain positive for some weeks. True for many viruses, including coronaviruses.

        More likely these cases were sent home for ongoing self-quarantine ASAP when they were well enough (there is significant pressure on the system). They are likely doing NAAT testing in their homes to determine when the person is no longer a risk and can leave home. Seems sensible.

        https://cmr.asm.org/content/21/4/716
        “As is the case for other CoVs, the period of viral shedding for NL63 may be protracted. The virus is still present in respiratory specimens 3 weeks after the initial infection in 50% of infected children”

      • Stewie GriffinMEMBER

        “That puts the global growth shock in Q2 amd Q3, just when the pandemic most likely causes Australian shutdowns during the southen hemisphere winter.”

        H&H I think you should refrain from scaremongering and panic by referring to the small localised outbreaks as a Pandemic – WHO have consistently resisted calling it a Pandemic because:

        “We must also be vigilant when it comes to misinformation and disinformation as well as xenophobic statements, which are misleading citizens and putting in question the work of public authorities.”

        https://www.smh.com.au/world/europe/world-records-coronavirus-milestone-as-who-warns-against-a-paralysing-pandemic-declaration-20200227-p544qz.html

        Of course is could simply be that there are a whole heap of UN insiders feasting on Juicey Investment returns that their “Pandemic Bonds” are currently paying:

        Class A bonds were issued in the amount of $225 million, with a payout of 6.9% annually. The bonds default if a pandemic is identified, and deaths reach over 2,500 in one particular country with an additional 20 deaths in another, the prospectus states.

        Class B bonds were issued in the amount of $95 million, with a payout of 11.5% annually but had a much lower trigger level of deaths, versus Class A, hence the high yield.

        https://www.zerohedge.com/markets/here-are-425-billion-reasons-why-who-refuses-call-covid-19-outbreak-pandemic

        FYI – It should be safe to start referring to it as a “Pandemic” AFTER July when the Bonds expire and/or when the UN insiders have exited.

  3. “Second, China is not going to rebound fast. As the global recession transpires, China will be held back through its external sector, as well as its own sturggles to revive domestic demand. Bulk commosity prices will get plastered through Q2 and possibly Q3 as well.”

    Says who? Why should China be held back by its external sector (though I believe that such a wide statement concerning its ‘external sector’ warrants more detail).

    Many in the past thought that the Chinese economy would slow down dramatically, including myself. Yet it has proven to be more resilient than many have thought. I was (and still am) a fan of Michael Pettis and his China slow down theories, but his bet with the Economist regarding China’s growth rate dramatically lowering will be nearly impossible to win at this stage. Yes, China has major issues, especially its dependance on debt for growth, but that does not translate to a continuing slowdown in the immediate future after the Coronavirus events are over.

    For the record, predictions of a terms of trade slump made here have been wrong in the past:

    https://www.macrobusiness.com.au/2015/03/measuring-australias-external-shock/
    https://www.macrobusiness.com.au/2017/03/australian-recession-2018-2019-2020/

    • Making all these predictions is generally a fool’s errand. Pettis and a thousand others are correct that China’s gangbusters debt-fulled growth cannot last but no one can say for certain when it will end. That said, making that prediction now with greater confidence is rational given the circumstances ie. China was already slowing before C-19, the US was pressuring supply chains to shift away from China, so this could be the knock out blow. China needs to service that debt urgently or there will be serious issues. The banking system there is a zombie already – buckling under a mountain of non performing loans. These are not the ingredients for boom time once again.

    • Arthur Schopenhauer

      It’s hard to frame a view radically outside our lived experience. The levers an authoritarian state can pull are very different to the levers of western democracy.

    • PalimpsestMEMBER

      OK, block people from China. That was phase 1. Now it’s out do we block people from Italy, or that have been in Italy in the last 2 weeks? Turkey? The Countries neighbouring Iran? Japan? The horse has left the Chinese stable. I think we’re now at the point where @Steve ‘s second virology down under link becomes relevant. We don’t have a self-sufficient economy any more. There will be little point just blocking China. That means we have to face what happens next.

        • Or you could smash some weights at the gym/run/ride/swim, and go to a mostly plant based diet low in meat fat/dairy and high in carbs and fibre.

          • Just imagine an epic crisis sweeps the nation – the silver lining would be that obesity would plummet. The nation would be living on a diet of grains, pulses and rice (or pasta), maybe some tomato-based sauces etc. When I was travelling in Venezuela many years ago almost all meals were a base of rice and beans – and some chicken if you were feeling flush. People eat way too much right now, don’t exercise enough and consume orders of magnitude more sugar than they should.

      • Mining BoganMEMBER

        Is this why happy-clappy loons like Scummo hate Darwin and his survival of the fittest talk? Scummo ain’t fit and he’s not going to survive any Lord of the Flies type nonsense. Someone at some stage has made up all this rapture talk just so lazy fat bastards don’t have to go for a walk.

        • Arthur Schopenhauer

          Group selection is a stronger evolutionary force than individual selection.

          Which translates as coherent societies with shared cultural values will do better in crisis than others. See Stewie for details.

          ( looks at post and think, have I got a case of the Skips – cough – chortle )

      • That’s the spirit. Lover that infection summit. Think of the lives saved in St Louis. I know the vested interests don’t care about how many will die.

  4. Very good post

    But I’m trying to understand what you are saying

    I think you should be clearer.

    If I read btw the lines you are saying over next 12 months, Australian property prices will be at least 10% lower this time next year????

    I think it’s important forecast because the property bubble is the only thing left

    ** note that with all these things above happening money gets sucked out of the banking system offshore, home loan interest rates are going to rise this year (out of cycle)

    Home losn interest rates thst are 3% now will risc4 or 5% I think that’s what you are saying

    If all you have forecast above happens which I think you are correct, Aust property prices will be at least 15 to 20% lower
    I think falls will be more but let’s take my extreme view out, no other forecast is possible if above happens this year

      • Coming I have to, because noone believes my extremes.
        I believe interest rates will be well above 5% more towards 10%
        In 3 years time I think property prices will be btw 50 and 80% lower
        The forecast above is MB’s forecast, I believe DLS privately knows it’s 50% but he can’t say publicly
        We will be down 30% plus this time next year.

        Let’s have a sensible discussion without getting personal.
        There is nothing to be gained and regardless whether I say it, it’s going to happen anyway.
        Me saying it isn’t going to make the falls anymore, I am just the messenger.
        I don’t want to see people in trouble (maybe politicians and maybe C Joye at least needs to take some responsibility because people listen to him – he has contributed to this bubble)

        • I would like you to explain the mechanism by which interest rates will rise

          My position is that the RBA dictates interest rates (or at least sets a ceiling)
          “offshore funding” is not mechanically necessary its dictated by AHPRA or by banks trying to increase their margin

          we have a floating currency for this reason

          Yes I think the currency may drop, im not sure of the magnitude (we’ve been running a trade surplus for some time – this depends on chinese policy response which I can’t possibly preduct)
          And house prices in USD terms may indeed fall

  5. The Traveling Wilbur

    Peachy would say when you’ve run out of ammunition and all that’s left is a stick, they’ll use a stick. Especially if it’s a big stick. And all pointy.

    OK, well, that admittedly might have been Buffy who said that. Not Peachy.

    Anyway… doesn’t a world-wide crisis that absolutely no one could be blamed for have seen coming seem like the perfect opportunity to introduce ‘we had no other option’ measures such as negative rates, QE or the RBA just cutting out the middleman and buying RE in Sydney directly.

  6. the only bad thing about this is that virus is going to be used as a scapegoat for the failure
    so in few years we will see more of the same, probably amplified

    what we need is the system to crumble under its own weight so people can go through a catharsis of some kind and change at least for a while

  7. Fox and the Hound

    I can’t wait to tell people around the world WHY AUSTRALIA FAILED once this whole rotten edifice collapses.

    • EP. Recently had a plumber do some work for me. Won’t go into details but i am deliberately delaying paying him. Is there anything he can do to force payment? Bill is $1600. He messed me around big time with no shows etc and faaarked up my Xmas plans. Needs to be taught a lesson. Thoughts please?

      • If he did the work – pay up.

        You had the opportunity to cancel him and use another plumber earlier.

        • fully. I had a guy fail to show up at a melbourne site, so I got someone else in and didn’t bother to let the first guy know. he turned up two days later.. no cheese for you lol.

      • I am trying to pay everyone in advance with a signed receipt, advance in rent bills in cred etc, becuase let the bank take their money not yours

      • Coming, if I get April forecast correct on both the prediction and timing.
        Timing is the hardest to get correct.
        You should study up some Astrology, Sun Stars Solar System.
        I am happy to run through with you if you like and have time.

  8. Not to mention, people like me who will just refuse to buy anything made in China or other countries that are unstable like this (african countries).
    It’s better if the world relied less on countries that can spawn viruses and if we all buy less of stuff from these countries, there will be less reliance on them in future.

    • Sure, they’ll understand this now when it’s too late, but while the going is good, who cares what the risks of globalisation are right?!

      • Yup I agree. The lessons will be forgotten with time. But I’m keeping this grudge and will be teaching my kids this too. Plus I think the anti-globalisation thing is here to stay. This virus thingy is just the accelator to the already burning fire.
        I don’t think CCP thought about how p1ssed off the world is going to get if they spread this when they decided it is in their best interest to spread it to the rest of the world. What do they expect? For people to be happy that their lives are disrupted because CCP couldn’t handle regulating a wet market? Their incompetence now leading to disruption in my life…. this doesn’t sell their case against Trump to the every day people who just don’t want to be bothered with CCP’s sh1tty problems.
        I honestly can’t imagine how annoyed the chinese in China are with the CCP, because the rest of the world is about to get furious at them.

        • Top comment. If the Chinese government put as much time and effort into actually caring about its people’s welfare as it did about its own legitimacy and profit then they would have invested in good medical facilities and hygenic public facilities that protect and safeguard its people’s livelihoods and we wouldn’t be in this situation. Its called looking after your people.

          The point is why is the world going through something like this every ten years coming out of China? Why doesn’t it come out of other countries …. what’s the difference here …

    • Arthur Schopenhauer

      Most of the precursors for the products you buy are made in China. Australia still has a plastics industry, but the ingredients for the plastics come from… any guesses?

    • OMG Zwift. Hate, love, hate, love

      Have you tried Rouvy. It beats Sufferfest.

      Fortunately, living in the Northern Rivers it’s possible to do 100km and not see another cyclist. I’m soo ronereeeee

    • The Traveling Wilbur

      Funish fact: ANAGRAM is an anagram of A MAN RAG.

      (this will be funnier / make more sense when you read the next comment below yours at the same comment level as yours)

  9. David WilsonMEMBER

    The more I read this rag the more I realise David L S is from the socialist left continually pushing their ideals and being anti government.
    The main reason we have a difficult government situation is that the greens, labor and some independents are all lefties wanting more government largess, higher taxes and moving back into deficits forever.

    • Arthur Schopenhauer

      No. We have a difficult government, because both sides serve their donors first and the citizens of Australia second.