The Question Is Not If, But How Much, Coronavirus Will Affect Queensland’s Economy
The Courier Mail published an article entitled “Coronavirus to cause chaos for Queensland businesses” on the 6th February 2020 outlining concerns of businesses about emerging issues surrounding the evolving crisis in China and the potential implications on economic activity in Queensland if it is not resolved quickly.
Following the release of that article, the Chamber of Commerce and Industry Queensland (CCIQ) spoke to Gene Tunny from Adept Economics about initial observations regarding the organisation’s export documentation activity as well as feedback received from various internal sources.
An analysis conducted by CCIQ of its internal records show that certificates of origin for live & fresh seafood exports to China in particular, have already been severely affected, while freight forwarders have reported concerns that some ships at sea may be unable to dock in China.
The discussion further canvassed a broad array of macroeconomic issues and detailed Queensland’s key export markets to China including merchandise trade as well as international tourism and education by which the State’s is directly exposed to any interruption to trade activities and the movement of people between the two countries.
In a follow up to the initial interview with Gene, CCIQ Senior Policy Officer, Gus Mandigora provided an update indicating that live marine export certificates are currently down by around 73%, fresh produce almost 17% down and beef down over 8%.
There continues to be significant conjecture about what the impacts of the coronavirus epidemic may be on the Australian economy.
While its likely impact has been compared to the SARS epidemic back in 2003-04, it may not be very instructive when making such comparisons to the current episode as China has gone through a substantial level of economic development and its economy is both much larger and more integrated with global markets than was the case in 2003.
Trade data from the Australian Bureau of Statistics (ABS) shows that Queensland is by far Australia’s second-largest exporter of commodities behind Western Australia, with the State contributing $84.867 (21.7%) to national exports of $391.813 billion over the year to December 2019, which is greater than New South Wales and Victoria together.
China remains the largest market destination for the Queensland’s merchandise exports with the ABS data showing that this relationship continues to eclipse exports to the State’s second and third largest export destinations, Japan and India respectively.
Exports to China started growing solidly from around 2008-09, with annual merchandise exports to China amounting to $28.963 billion over the year to December 2019, constituting 34% of the State’s total exports.
China has been in the driving seat of growth in Queensland’s exports with a simple linear regression between exports to China and Queensland’s total merchandise exports showing a very strong association with a coefficient of correlation of almost 91% and a coefficient of determination (R2) of 82%.
The ABS only itemise the monthly merchandise trade data by commodity at the national level and not the state level.
The latest detailed annual merchandise trade data provided by the Department of Foreign Affairs and Trade shows that over the financial year to June 2019 Queensland exports totalled almost $87.298 billion. Shipments of coal, confidential items predominantly consisting of natural gas, and beef dominate Queensland’s export programme. (Note that Queensland’s sugar exports which are typically over one billion dollars per year are not itemised.)
By sector, merchandise exports in minerals and fuels together with confidential items, which includes LNG, alumina and semi-soft coking metallurgical coal, PCI coal as well as cotton) made the largest contribution in value totalling almost $69.904 over 2018-19.
Agriculture, fisheries and forestry exports amounted to over $8.739 billion, manufactures over $8.441 billion, and other exports such as gold, coins and special transactions totalled $213.382 million.
By commodity, hard coking and thermal coal exports accounted for 43.2% of the State’s annual export income, LNG made up an estimated 17.7%, minerals 12.4% while beef accounted for 6.7%.
Itemising merchandise exports to China highlights Queensland’s exposure to any disruption to the country’s trade.
Beef is the largest agricultural export with around $892,000 (16.6%) exported to China, with key exposures including cereal grains and forestry exports and one third of the state’s exports of shellfish.
Just over one quarter of the state’s coal exports, almost one half of confidential items and over 90% of copper, aluminium and precious metals ores head to China.
ANZ’s weekly Commodity Call research reports have continued to note that thermal coal prices have remained resilient with the prospect of lower Chinese production bolstering seaborne coal markets. Moreover, if coal mines struggle to restart and output falls, then they expect import demand to surge.
On the other hand, ANZ reported that China had declared force majeure for some LNG contracted imports and that at this point they expect elevated inventories and softer demand to continue as with base metals.
Of the state’s manufactures, copper and zinc products are by value the largest export items with growing exports items such as pharmaceuticals and medical instruments also heavily exposed.
In addition to merchandise exports, Queensland’s tourism and international education services sectors are also highly exposed to decreases in visitor and student numbers as a result of the virus.
According to .id figures Queensland has recorded over 250, million visitor nights over the last 5 years.
REMPLAN figures show that in 2017-18 Queensland tourism output was estimated at $31.038 billion, representing 4.5% of total output, with the largest sub-sector being Accommodation & Food Services with tourist’s expenditure contributing $12.617 billion.
Moreover, the value added represented almost $14.744 billion, supporting an estimated 164,562 jobs (7.7% of the state’s total employment) with 90,857 jobs in Accommodation & Food Services.
Similarly, Business Queensland note that the industry employs 217,000 Queenslanders both directly and indirectly, which makes up around 9% of employment in the state, contributing $12.8 billion directly to the Queensland economy, which is around 3.9% of gross state product . The industry indirectly contributes an additional $12.5 billion to the state's economy, making the total contribution $25 billion, or 7.8% of total Queensland GSP.
It doesn’t matter which statistics you consider tourism is a big deal in Queensland and the coronavirus poses a significant risk to the sector with Chinese visitors making up the largest international visitor market.
Finally, the Conus quarterly report released for March shows that, based on data to September 2019, while tourism has seen international visitor expenditure across Australia increase by 21.4% in the three years to September 2019, in Tropical North Queensland it has already fallen by 3.9% well before any impacts from coronavirus or the bushfires had been felt. As noted, “the main driver behind that … Chinese visitors (by far and away the region’s largest market) have fallen from their previous peaks and been fairly static for the past year or so. There is no other market in which we have seen compensatory increases of anything like enough scale to offset those Chinese declines.”
It is fitting the various levels of government have started to respond aggressively to try and brace the state and national economies from the significant challenges posed by the coronavirus outbreak and its quickly evolving far-reaching economic impacts.