Market loses around $140bn and economists forecast first slump since 1991, as two Sydney schools are closed and coronavirus cases grow

This article is more than 6 months old

This article is more than 6 months old

Australia is heading for a recession in the first half of this year, leading economists have forecast, as the continuing impact of the coronavirus outbreak saw the stock market endure its worst day since the global financial crisis.

Around $140bn was wiped from the value of shares as the ASX200 lost 7.33%, shedding 455 points to 5,760 points. The Australian dollar was also caught up in the selloff and was trading as low as 63.98 US cents.

Oil stocks plunged and the price of oil fell by more than a fifth after Saudi Arabia slashed its official selling price and announced it would raise production. On some forecasts, retail petrol could be as low as $1 a litre in Australia soon.

The bloodletting on financial markets prompted both Westpac and Bloomberg Economics to forecast that Australia’s economy will contract for two successive quarters for the first time since 1991. The economy will shrink 0.6% in the first two quarters, Westpac said, while Bloomberg saw a contraction of 0.7%.

The outbreak continued to impact beyond the financial world. Two schools in Sydney were closed on Monday after three students tested positive, and further school closures are expected. In Melbourne, after controversy over a GP who continued to see patients while unwell, Victoria’s health minister said health professionals must stay home if they are sick, insisting they be “alive to the risks” of community transmission.

“This is a public health emergency of an unprecedented nature that our nation and that the entire global community is facing,” Jenny Mikakos said.

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Confirmed cases of Covid-19, mainly among people who have travelled overseas, continue to grow across the country.

New South Wales now has 46 confirmed cases, including the three schoolchildren, Queensland and Victoria 15 each. There are now 91 cases across Australia, with three deaths.

Globally, more than 100,000 people have been infected across 94 countries, with 3,800 deaths. The vast majority of infections and deaths remain in mainland China, though Italy, South Korea and Iran all have more than 6,000 infections.

Australian treasurer Josh Frydenberg is set to unveil a fiscal stimulus package in coming days. The package, once flagged as “modest” but now billed as “substantial”, could run to $10bn and is expected to focus on supporting business cash flows over periods of shutdown or supply chain instability.

“This is a health crisis with a significant economic impact,” Frydenberg said. “There will be disruptions to supply chains. We’ve already seen it. There will be a hit on some sectors of our economy in particular. And we’ve already seen that. There are some 95,000 Chinese students that would otherwise be starting their semester that are unlikely to get here. And, of course, the number of tourists has dropped dramatically.

“So these are the economic impacts that the Australian government, with our fiscal response, with the work of the Reserve Bank, is designed to continue to provide confidence to the Australian community.”

Frydenberg told reporters market volatility was “not uncommon at a time like this”, noting there had been a steep drop in the oil price in recent weeks.

Full Story Will the coronavirus trigger a recession? Sorry your browser does not support audio - but you can download here and listen https://audio.guim.co.uk/2020/03/06-24361-FS_Corona_econ.mp3 00:00:00 00:25:43

He said he called the chairman of the Australian Competition and Consumer Commission chairman, Rod Sims, on Monday morning to make sure the regulator would see that consumers benefited from the lower oil price, which has fallen by 47% since early January.

“I wanted to re-emphasise to the ACCC the importance of holding the oil retailers to account and ensuring Australians get the benefit from lower oil prices.”

Announcing his recession forecast on Monday, Westpac chief economist Bill Evans added the caveat that his calculations were based on the government not doing anything to stimulate the economy. So Frydenberg’s expected package could force a rethink, Evans said.

“Westpac has revised its growth forecasts for the Australian economy in 2020 to take into account the expected impact from the coronavirus,” he said. “The numbers are based on a ‘no fiscal stimulus package’ basis. The government is set to announce its policy response later in the week and it will be necessary to adjust the numbers according to our assessment of the impact of the policies.”

If businesses are forced to close by a widespread coronavirus outbreak, the ACTU has raised concerns over Australia’s 3.3 million casual workers who are not entitled to paid sick leave.

“One in three workers have no paid sick leave. Governments have allowed this casualisation to happen. It needs to be reversed,” ACTU president Sally McManus said.

“We don’t want people with the virus or people with symptoms going to work, but they are going to have to choose between paying the bills and feeding themselves or going to work.”

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McManus said casual employees should be offered paid leave if they are forced to self-isolate, with employers compensated later.

Ratings agency Moody’s has revised its global macro outlook and its baseline growth forecasts for all G20 economies, slashing Australia’s projected growth by more than a quarter.

Moody’s had projected Australia’s economy to grow at 1.8% for the quarter; on an “extended and prolonged slump”, that figure is now forecast to be 1.3%.

Simultaneous global supply and demand side shocks will slow economic activity across the first half of the year.

“Global recession risks have risen. The full extent of the economic costs will be unclear for some time. Fear of contagion will dampen consumer and business activity. The longer it takes for households and businesses to resume normal activity, the greater the economic impact,” Moody’s March 2020 global macro outlook argued.

Australia’s chief medical officer, Prof Brendan Murphy, said Australia was not at a “tipping point” with the virus, and that there remained only one confirmed case of human-to-human transmission occurring in Australia.

The Australian government’s Healthdirect hotline – 1800 022 222 – crashed through an overload on Monday, and the Coronavirus Health Information Line – 1800 020 080 –was experiencing significant delays.