Economic and Financial Market Update: Coronavirus


Over the past few weeks we have started to get a glimpse of what the impact of COVID-19 and social distancing policies has had on the global economies. And it is big. European business surveys indicate a massive drop of business confidence (notably in the service sector) in March. Given the surveys were conducted in early March before the most stringent quarantine policies were put in place, worse readings are likely to come.


The ABS has recently released a survey of firms as to how they see whether COVID-19 has negatively impacted their business. To date a higher proportion of bigger firms say it has been a problem. But around 85% of firms regardless of size believe they will feel some pain in coming months.


Weak demand is understandably the expected biggest concern about COVID-19. But the second biggest is labour shortages (reflecting sick workers, or parents having to care for kids). Moving workers between industries could help although different skill requirements will limit how much movement can be done.


Australian consumer confidence has dropped sharply over recent weeks as households have taken on board all of the negative news. One of their major concerns is that they have been increasingly worried about losing their job. And the most recent survey was conducted before some of the recent Government social distancing requirements.


But just as the economic information is turning increasingly bad (and is likely to get worse) financial markets have been turning increasingly optimistic. The main reason is that global central banks and governments (including our Federal and state governments and the RBA) have indicated that they will do whatever it takes to cushion the economic blow. Let’s hope that financial market optimism remains in place.

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