Threat from the coronavirus continues to grow

We estimate GDP growth in Australia continued to muddle along in Q4, edging up from 0.4% q/q in Q3 to 0.5% q/q. In New Zealand, we think a stronger contribution from net trade was offset by a decline in inventories and softer consumption growth, causing overall GDP growth to slow to 0.4% q/q. But what happened in Q4 is less important at this point given that the economic impact of the coronavirus-related disruptions will hit in Q1. Both Australia and New Zealand have put travel bans in place for any non-residents who have visited mainland China in the past 14 days. That will undoubtedly impact tourism exports in both countries. And with most universities returning from summer break this month, there could be a significant impact on education imports as well. Add in the potential damage to the logging industry in New Zealand and the mining industry in Australia and we expect both economies to shrink in Q1 of 2020.