Australian economy to feel sting of virus

AUSTRALIA will soon be mired in recession as the spread of coronavirus delivers a painful economic shock, one of the world’s most influential credit rating agencies has warned.

And consumer confidence has slumped to its weakest level in five years as the outbreak takes a heavy toll, according to separate research.

The downbeat developments yesterday came as a sea of red again engulfed the Australian stock exchange, dragging it into a “bear market”.

As sellers again swarmed the exits, the benchmark ASX 200 index tumbled another 3.6 per cent, stripping $64 billion from the market’s value.

Since February 20, when it was at a record high, it has slumped 20.1 per cent — crossing the 20 per cent mark broadly regarded as the threshold for a bear market.

The amount cut from the value of the nation’s biggest listed companies in that period stands at $430 billion.

Stepping up its warnings about the impact of the coronavirus outbreak yesterday, credit rating agency Standard & Poor’s said it now expected the economy to slide into recession by June.

It would be the first such recession for Australia in almost 30 years.

The nation’s prized triple-A credit rating would also come under pressure “if weak economic conditions are more prolonged than we currently expect”, S&P Global Ratings analysts said in a research report. “This is the weakest economic outlook in 20 years and means the COVID-19 outbreak would be a greater economic shock to Australia than the global financial crisis,” they said.

Last week, S&P said it was expecting Australia to slide into recession, but not as measured by the usual yardstick — two consecutive quarters where the economy shrinks.

It now expects the nation will, in fact, suffer a “technical recession” as the economy shrinks this quarter and next before rebounding. Analysts said they had not factored in the impact of stimulus measures due to be announced by the Federal Government today. That may help avert a recession, but at the same time such stimulus would weaken the government’s budget position, they said.

The S&P analysts said Australia’s triple-A rating was “not under immediate threat”.

Only 10 other countries have the top credit rating, which is of significant value as it enables governments to borrow money at a lower cost.