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The Reserve Bank is reluctant to speculate how deeply the coronavirus will hurt Australia’s growth beyond the March quarter, but accepts the wider global economy will be materially weaker.
Deputy Governor Guy Debelle on Wednesday reiterated the central bank’s expectation that the virus will deliver a 0.5 per cent hit to GDP via the education and tourism sectors alone in the three months to March, but the rapidly evolving nature of the outbreak meant a mid-term outlook was hard to quantify.
“Clearly we are still only in the early weeks of March, so the picture can change from here,” he told the Australian Financial Review Business Summit in Sydney.
“It is just too uncertain to assess the impact of the virus beyond the March quarter.”
The RBA’s second-in-command was expected to talk about investment at the conference but instead gave the bank’s view of the local and global economy as the virus spreads to more countries.
The coronavirus has infected more than 110,000 people and resulted in 4,000 deaths worldwide since it surfaced in China late last year, decimating travel and tourism industries, smashing supply chains and hammering financial markets.
Australia’s number of cases rose overnight from 80 to 100.
Mr Debelle said the Reserve Bank’s business liaison program was gathering information on supply-chain disruptions to the local construction and retail sectors, but the picture remained unclear.
Coal consumption and traffic congestion indexes in China showed that the Chinese economy was only now gradually returning to normal.
“Even as this occurs, it is very uncertain how long it will take to repair the severe disruption to supply chains,” Mr Debelle said.
In the meantime, the virus continues to spread to other countries.
“They too are beginning to suffer significant disruptions, the extent and duration of which is unknown at this time. The conclusion is that the global economy will be materially weaker in the first quarter of 2020 and in the period ahead.”
Mr Debelle noted that the RBA was right in its prediction the economy was on the improve before disruption from the summer’s bushfires and now the virus, and tipped the eventual recovery to be supported by low interest rates.
The reserve bank cut the cash rate to a record low 0.5 per cent on March 3 to help buttress the economy against the impact of the virus and is widely expected to make it back-to-back cuts next month.
A lower exchange rate, a rise in mining investment, infrastructure spending and an expected recovery in residential construction will also contribute to an eventual recovery, he said.
“The combined effect of fiscal and monetary policy will help us navigate a difficult period for the Australian economy,” Mr Debelle said.
“They will also help ensure the Australian economy is well placed to bounce back quickly once the virus is contained.”
Meanwhile, the federal government on Tuesday said free telehealth services and pop-up testing clinics will be set up as part of a $2.4 billion health response to the outbreak.
Health Minister Greg Hunt also said the government has requested experts to review the status of travel advisories for Italy.
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