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RBA declares coronavirus ‘worse than SARS’ for Australian economy

Australian flag health

The governor of the Reserve Bank of Australia, Philip Lowe, is fronting parliament today. Testifying in front of the House of Representatives Committee on Economics is one of the duties he is required to periodically fulfill.

According to reporting in the Australian Financial Review (AFR), Lowe has outlined his concerns over the coronavirus and has labelled it ‘worse than SARS’ for the Australian economy. SARS (or Severe Acute Respiratory Syndrome) was an epidemic that swept the world back in 2003, causing worldwide panic before the threat subsided.

Although Lowe stated that some of the effects from the coronavirus were too early to gauge, he did say that “given what we know at the moment I think that is true (that the coronavirus will be worse than SARS). That would be my assessment. The first order effect is on the number of students coming to Australia.”

Lowe is, of course, talking about the disruption to the higher education industry – a sector that represents one of Australia’s largest exports. A huge proportion of international students hail from China and broader Asia. The coronavirus and, by extension, the temporary ban on non-residents coming to Australia from China is expected to cripple this sector (at least in the short-term) – no doubt causing a huge economic dent.

What does this mean for the ASX?

The ASX is down today, with the S&P/ASX 200 (INDEXASX: XJO) 0.43% lower at 7,019 points at the time of writing. This might not be completely correlated with the Governor’s comments this morning, but they wouldn’t have helped to say the least.

Stocks related to China and travel continue to fair the worst (as you might expect). Qantas Airways Limited (ASX: QAN) shares are down over 10% from the 52-week high that was reached in December. Flight Centre Travel Group Ltd (ASX: FLT) and Corporate Travel Management Ltd (ASX: CTD) are also struggling, down 10% and 15% over the last month respectively.

Foolish takeaway

Unfortunately, I think that the coronavirus has the potential to cause a short-term hit to the share market – especially if the virus continues to spread at its current rate. The markets are coming off record highs, which means that they’re more vulnerable to a correction if the economy takes a hit – as Mr Lowe is discussing.

But as investors, these events are the kinds of things that we have to deal with from time to time. As I always say, if you focus on the long-term fundamentals of your investments, you’ll do just fine in the long-run.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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