Impact of COVID-19 to Australia Retail Industry

COVID-19

Coronavirus outbreak that emerged in late 2019 has infected tens of thousands in China. What’s the status now and any impact to Australia especial to retail Industry?

COVID-19 status now

A reports from McKinsey give us an outlook to future: Hubei situation remain challenging, two potential scenarios for rest of China.

Scenario#1: Situation under control, with a faster economic recovery

Even situation in Hubei province is likely to remain acutely challenging for upcoming months and economic recovery is not expected before 6~12 months time. Other  region are much better:

Covid-status

status of Covid

Despite the return of millions of migrant workers to major cities, effective disease control initiatives succeed in preempting  OVID-19 from further major spreading

  •  COVID-19 disease situation: Infections to continue to rise in coming weeks, but new infections slow sharply by the end of Q1
  • Economic activities: Travel restrictions and quarantine  measures to begin easing substantially in Q2, with a consequent recovery in activity.

Senario #2: Another wave of infection, leading to a slower economic recovery

The return of millions of migrant workers to major cities causes another wave of new COVID-19 infections across region

  • COVID-19 disease situation: Infections to continue to grow
    significantly into Q2, with sustained transmission across most countries and/or individuals, e.g., 10+ countries, large population at risk
  • Economic activities: Health and travel restrictions to remain in place through most or all of Q2, delaying a recovery until the second half of the year.

We can see that the situation of Korea, Singapore and Japan are not optimistic in these 2 days.

Australia’s economic is highly coupled with China (and then Japan, South Korea):

  •  (Export to China > Total of No.2…..No.9). Import from China is similar position.   (Contribute around 32%). 
  • Education export to China is around 8% of total exports value.
  • Trading share of GDP is 43.2%.
  • So, Around 17% GDP is contributed by China directly.

We already see some slow regression of Australia economics: Automobile sales: in Jan. 2020, it’s 72K and down 12.5% comparing to 2019.

In fact, China is far more important than most of people’s imagination in economics, and now the engine is nearly freezed. Retail industry should consider of the impact as below:

  1. Direct impact: Keep eye on supply chain first if there is things linked with  China. Adjust properly on forecast if sell to China.
  2. Impact to economics will reflect on consumer market in 2nd half of 2020. Vendors and company should pay attention to forecast and cash flow, especial for non-rigid demand.
  3. Forecast, Stock Level and Cash Flow will be 3 factor everyone should keep eye on with caution.

Some Forecast:

In these 2 days, we can see fast growing of number in Italy, Korea & Japan while china is under control (Most of province except Hubei number is 0 on daily grow).

We believe that the biggest impact to business is not only hurt from China, it’s will be uncertain of the future and even government is not experience to handle that. For example, most of  suggestion from USA CDC is out of date and they just repeat the words from paper published by Chinese doctors weeks ago. They even can not(or maybe they don’t want to) catch up the published suggestion from China officially, and we can see lots conflict information like how doctors should protect themselves. There is no political, or even there is no technical ,it’s only lessons learned from thousands of lives.

There are 3 possible way that COVID-19 will go in Australia:

1. Under control like China. A government like China, billions people follow the rule like China, and biggest holiday. Obviously, not possible.

2. Outbreak in major city. The worst case is that all of us will experience how the third world looks like. What happen in Wuhan:

    1. Everyone, each family need to stay at home.
    2. Resources from whole China support them like: foot, engineers, equipment. Supply chain of basic requirement is supported by whole China. (Population of Wuhan is 11M, while China is 1.4B, nearly 100 people support 1 people there).
    3. 30K doctors and nurses from other province come to Wuhan to support local hospitals, all armed with equipment and resources from their hometown, one province support one district in Wuhan. While there is a big difference between China and Australia system is that doctors in China works for hospitals just as professors for university, it’as easy for them to gather together and work as one team (because most of high risk patients need experts from all areas to work together).
    4. Bad news is that even Wuhan is supported by such strong resources, the dead rate is 20 time of other province (3.6% vs 0.18%). Why?
      1. Lack of hospital、doctors and equipment at very beginning.
      2. Lack of experience how to to handle that, especial at very beginning. One bad fact of COVID-19, lots dead people feels good just one night before. Every patients need to be close monitored.
      3. Too comments for death rate which is key factor to judge the severity:
        1. No one know the real number but Chinese number is a good reference (mostly the real number is higher than that) because the chain of infection is well tracked in China.
        2. Don’t be misleading by 0.18%, other countries should be much much higher than that because the patients in China is treated by the best doctor team and best equipment, it’s a project of whole country. (WHO expert Bruce Aylward: “You know, if I had COVID-19, I’d want to be treated in China.”)

If COVID-19 outbreak in Sydney or Melbourne. Do we other resource from other cities to support? Answer is clear.

3. The growth rate of COVID-19 is slow and long term. Step by step, lots of people are infected, recovered and will not be infected again. That means the chain of infection is broken.  It need government to take action right now and everyone take actions to protect themselves right now.

The result, maybe this is the best we can expect:

  1. Slow down of mobility rate and economics.
  2. Long time (Half year at least).

4. There is another possibility. Disappear like India because of hot weather and strong natural immunity of most people. No strong evidence yet…

So, everyone of us. Let’s pray for the best and prepare for the worst.

Some reference data as below:

Top eports to 15 countries from Australia: 

  1. China: US$89.2 billion (32.7% of total Australian exports)
  2. Japan: $24.4 billion (9%)
  3. South Korea: $13.6 billion (5%)
  4. United Kingdom: $10.4 billion (3.8%)
  5. United States: $10 billion (3.7%)
  6. India: $9 billion (3.3%)
  7. New Zealand: $7.1 billion (2.6%)
  8. Taiwan: $6.8 billion (2.5%)
  9. Hong Kong: $5.3 billion (2%)
  10. Singapore: $5.3 billion (1.9%)
  11. Malaysia: $4.6 billion (1.7%)
  12. Vietnam: $4.2 billion (1.6%)
  13. Indonesia: $3.7 billion (1.3%)
  14. Thailand: $2.6 billion (0.9%)
  15. Germany: $2.1 billion (0.8%)

Australia Imports by country: 

RANKIMPORTER2019 AUSTRALIAN EXPORTS2018-9
1.China$89,157,198,000+20.4%
2.Japan$24,444,883,000-6.7%
3.South Korea$13,619,722,000-0.003%
4.United Kingdom$10,418,512,000+192.0%
5.United States$9,963,305,000+7.8%
6.India$8,988,380,000-11%
7.New Zealand$7,062,431,000-0.5%
8.Taiwan$6,810,355,000+2.3%
9.Hong Kong$5,333,455,000-32.1%
10.Singapore$5,286,291,000+8.7%
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