The Reserve Bank of Australia (RBA) released a statement in the early hours of the morning pointing out what they think the impact of Coronavirus could be on the domestic economy, it’s safe to say that it did not make for good reading at all. There are fears that the economy over the COVID-19 period could have shrunk by as much as 6%, with the concerns that unemployment may fall to as low as 10% in the coming months.
Clearly the effect of Coronavirus will be felt around the whole world, as just about every economy will suffer a hangover in some way or another. The first major corporate scalp fell in Australia today as Virgin Australia moved into voluntary administration. There could certainly be major brands that follow as any company that was already using loans to stay a float will be in desperate need of help.
Australia does have one strength and that is that the number of cases has been low and there are slow eases on restriction, far faster than the rest of the developed world. There were a few beaches open on the weekend which was the first time in a few months, so their economy may stabilise long before some others. The next few weeks will be telling for the Aussie as them and China could return to fairly normal trading levels. If that relationship comes back on line sooner rather then later, AUD could make up some ground on the euro with the rate returning below the 1.70 level.
The euro on the other hand has a very long road back to normality and the southern economies such as Spain and Italy could see far worse outcomes than the Australian economy. If Italy was bankrupt before COVID-19 and Spain’s unemployment was already high then there could be major consequences on the cards in the near future. The Eurozone will have a huge amount of recovery to do with their bailout package already at half a trillion euros to try and help the economies back on their feet. Germany and the Netherlands economies are set to bounce back following the outbreak however that cant be said for all the economies. The European Central Bank will no doubt layout their position as to where they could assist with recovery in the coming weeks, with interest rates at 0% and the last two years involving extensive quantitative easing it will be interesting to see their decision and what effect that will have on the markets.
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