How the Coronavirus is hurting the economy

Sadly, we had our first death in Australia over the last 24 hours from the Coronavirus.

The question that I often get asked though is why is it if there’s more people dying of the regular flu, every day, around the world, why are the financial markets suffering so much from the Coronavirus? We’ve already seen share markets fall by 10% in one week and that’s wiped 200 billion dollars off the value of the Australian share market. Well, there are a few reasons for this.

Let’s look at the first reason which is China as a consumer. Chinese people are no longer buying our products. They are not buying iron ore from Australia. They are not buying coal. They are not coming to study in our universities. And they are not visiting our hotels and as tourists consuming other products when they get here. So that is the first impact on the Australian economy.

The second impact is China as a supplier into the Global Supply Chain. So imagine that you are constructing a building and its time to install the elevators, the lifts. There is a particular part that you require, and that part comes from China. And because the Chinese factories have closed down, you can’t get your hands on that part. So you can’t put in the lifts and therefore you can’t continue with the construction of the building. So you are going to need to layoff some of the contractors at least temporarily and those people don’t have jobs for a while so they can’t go and spend money within the Australian economy as well. We are seeing the same thing in car manufacturing which relies on Chinese parts and lots of other industries as well.

The third thing we have is people living in Australia who make decisions not to live their lives they would have. So they might decide not to travel. So once again that has an impact on the tourist sector.

And then finally, in the wake of all of this, businesses get nervous and they decide to stop spending money on investment and they stop hiring people. And that has another flow-on effect onto the Australian economy as well.

So when you put on all those different things together, we can see that the Coronavirus is starting to have a real impact on the economy and on financial markets. Let’s hope it doesn’t continue for too much longer.

Now the question for me then is what does all these mean for pricing? Well, you could be in a fortunate position where your product suddenly has less competition because you normally compete with products that are being imported and those competition products aren’t coming into the market and that’s great. That gives you more pricing power. You may even be in a position to put your prices up slightly. Although be careful not to gauge your customers because that could harm your reputation if you are taking advantage of what is a sad situation.

Alternatively, if you are in the tourism sector, then you might find that you need to reduce your prices in order to stimulate demand for your product and service.

In our next video, I am going to go into more detail about some of this and do a deep dive into the tourism sector and see what’s actually been happening to prices in hotels. But in the meantime, make sure you wash your hands, stay safe and wear a mask.

If you would like to see this post in a video format, then please watch below:

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