SYDNEY (Reuters) – Measures of Australian business and consumer sentiment took a battering in February as a coronavirus outbreak threatens to severely impede growth, raising the risk of the country’s first recession in three decades.
National Australia Bank’s The survey’s volatile measure of business confidence plunged to -4 from -1, with sales and profitability remaining weak.
More importantly, leading indicators were softer in the month with forward orders deteriorating significantly while profitability dived to -5 from +1 in January.
NAB included a special question this month asking firms if they had any impact from the coronavirus. Around 50% of the responded replied in the affirmative.
“It is very possible this number will rise as the spread of the virus continues – this would most likely result in a further deterioration in confidence and eventually reported business conditions,” said NAB Group Chief Economist Alan Oster. The coronavirus has killed about 3,900 people across the globe, with three deaths in Australia. Stock markets have plunged, prompting central banks around the world to ease monetary policies.
In Australia, the virus has wreaked havoc on two of the country’s most lucrative sectors – tourism and education – with the Treasury department estimating that the epidemic will cut 0.5 percentage points off economic growth in the first quarter. Economists are predicting a recession, forecasting a contraction in the first two quarters of this year.
In a bid to boost growth, the Reserve Bank of Australia (RBA) already reduced interest rates to an all-time low of 0.5% this month and chances are it will go again in April taking policy to 0.25%. A separate survey also out on Tuesday showed weekly consumer confidence fell 4.2% last week.
“Fear about the near-term economic outlook is driving the weakness,” said David Plank, head of Australian economics at ANZ Banking Group.
“This highlights the challenge facing the federal government as it finalizes its soon to be announced stimulus package.”
The Australian government is set to unveil a fiscal stimulus package this week in a bid to stave off recession.
While details of the measures are still being finalised, media reported that the planned A$10 billion stimulus would include wage subsidies and cash injections for businesses.
(Reporting by Swati Pandey; Editing by Shri Navaratnam)
