Market Update - March 2020

The Pulse

  • Despite a reasonably robust underlying economy, the impact of the coronavirus is likely to weigh heavily on the US and other China-exposed economies.

  • The Australian government is preparing to release a targeted fiscal stimulus response to support economic growth and avoid a recession.

  • Geopolitical and trade tensions have been forced out of the spotlight, but they remain live issues that could re-emerge as the US presidential race begins.

  • Rate cuts from central banks in response to the coronavirus will be limited in addressing supply-side issues impacting the global economy.

  • As the UK negotiates a trade deal with Europe, Prime Minister Johnson said he will not seek an extension if an agreement is not reached before 31 December.

Global economies

The focus over the past month has been almost entirely on the coronavirus outbreak, the measures taken to contain it, and the potential economic fallout. At this stage it is difficult to gauge the impact on Chinese and global growth, but so far the disruption caused to supply chains and the effect on confidence has been dramatic.


In response to the coronavirus outbreak and anticipated economic fallout, the US Federal Reserve made an emergency cut to the funds rate of 50 basis points – its biggest single cut since 2008 – bringing the rate to 1.25%. Fed Chair Jerome Powell said: “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time.”


Eurozone GDP grew by less than 0.1% in the December quarter according to the flash estimate, marking the slowest rate since the recession in 2012-13. Data showed GDP in Germany was essentially unchanged, while in France it shrank by just under 0.1% amid disruptions over pension reform. Over 2019, eurozone GDP grew by just under 1.0%, which was the slowest year-on-year growth rate since 2013.


At this stage it is difficult to gauge the exact impact of the coronavirus on Chinese and indeed global growth. Consensus forecasts for Chinese GDP growth in the current quarter are variable but could be close to zero given the extended closure of industry, restrictions on people movement, and the disruption caused to supply chains. While past epidemics like the SARS virus had a limited effect on global growth, the effect of the coronavirus epidemic is expected to be much greater given China’s dominant presence in the global economy.

Asia Region

Japan’s GDP contracted at a 6.3% annual rate in the December quarter after the October rise in the consumption tax, posting a result much weaker than the anticipated 3.7% fall. The contraction was similar in size to that seen during previous tax rises, suggesting that stimulus measures were ineffective.


Unfortunately, the coronavirus and the policy response have come at a time when the Australian economy was showing signs of improvement and the budget was on a firm footing. There is a chance that the domestic economy will contract in the current quarter, prompting calls for fiscal stimulus. In 2018, Australia’s exports of travel services to China amounted to $16.2 billion, of which $11.7 billion was education-related and $4.1 billion was classified as ‘other personal’.