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Australia’s three straight decades of economic growth without a recession are due in large measure to its robust trade with nearby China. Now the good times might be ending.
First, drought and abnormally high temperatures have combined to fan the worst wildfires the continent has confronted in decades. An area the size of Belgium and Denmark combined has been blackened and more than 2,000 homes destroyed.
All five of the nation’s states were burned and much of the country was blanketed by smoke. On one day in December, Sydney’s air quality was rated at 11 times worse than the official hazardous level.
The damage estimate exceeds Au$4.4 billion, or about US$3.5 billion.
And then there’s the coronavirus, which is paralyzing China’s industries and curtailing its imports of the metals and other raw materials that Australia supplies it with.
“It’s having a domino effect on everything to do with China,” said the owner of a seafood company that usually ships up to ten tons of lobsters a day to China and now has seen business slow to a trickle.
Australia welcomes about 1.5 million Chinese tourists a year, about 15 percent of its annual visitors. Visits already had dropped off due to the fires, costing the nation an estimated Au$4.5 billion and knocking 0.5 percent off retail sales in December.
Australia normally hosts about 200,000 Chinese students each year. They typically return home to celebrate the Chinese New Year in January and, so far, about half haven’t returned, due to China’s virus quarantines and curtailment of internal and external travel.
A quarter of the University of Sydney’s income derives from the students.
“There is a very real risk that gross domestic product will contract as a result of the combined drag from the bushfires and coronavirus,” said Sarah Hunter, an economist with BIS Oxford Economics. “Whether we go from this to a recession critically depends on how the outbreak unfolds.”
Australia’s economy already was decelerating, with consumer spending softening and China’s economy slowing to a six-year low in 2019. Growth was paced at 1.7 percent through the first eight months of 2019, compared to 2.8 percent for all of 2018.
Australia’s benchmark S&P/ASX 200 Index is down 5 percent so far this year, and Australia’s dollar sank to a near-record low of US$0.67 in early February.
Economists had predicted a 2020 growth pace of 2.5 percent, now at risk and already optimistic in the face of the 1.7-percent pace last year.
The lingering effects of the fire and now the virus’s added plague could combine to take 0.5 percent off this quarter’s GDP growth, according to Shane Oliver, chief economist at AMP Capital.

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