Australia’s economy could be no small beneficiary of an end to China’s zero-Covid policy over the next two years, according to JPMorgan.
“China’s shift toward an earlier reopening raises the question of potential implications for the Australian economy,” JPMorgan’s chief investment strategist Tom Kennedy said in a Saturday report.
“The largest potential upside from reopening itself sits within the services sector given China is the largest consumer of Australian tourism and education exports,” Kennedy wrote, noting that benefits from further changes to Beijing’s industrial policy would be an exception.
The firm’s note added that a full recovery in Australia’s tourism will add 0.5 percentage points to its gross domestic product and the return of international students from China will add another 0.4 percentage points — amounting to nearly a full percentage point in the nation’s economic growth.
Full tourism recovery with China
Though Australia lifted Covid-related travel restrictions in July last year, its short-term overseas arrivals are still a far cry from pre-pandemic levels.
The latest data by the Australia Bureau of Statistics showed a total of 430,470 short-term trips were made to Australia in October 2022 — 44% lower than levels seen in the same month in 2019, when the nation received more than 1 million short-term visitors.
October’s data, released in December, showed visitors mostly came from New Zealand, the U.K. and the U.S. — arrivals from China were not listed on the ABS’ top 10 list of countries that the tourists came from.
In 2019, China accounted for 15.3% of all of Australia’s inbound tourism, making it the largest source of short-term visitors, JPMorgan said. It added that the average Chinese tourist’s spending was four times that of a tourist from New Zealand, the second-largest source of inbound tourists to Australia.
“Our expectation is for the tourism-related consumption impulse to be spread over 2023 and 2024,” Kennedy wrote.
“While the duration adjusted spending numbers are less striking, real GDP is an aggregate concept and so the absence of Chinese tourism has been a notable headwind,” he said.
Students from China
JPMorgan said it expects the pace of international student enrollments to accelerate this year.
According to data from Australia’s Department of Education, more than 253,000 international students arrived from China in from January to October in 2019. That year-to-date number fell to roughly 173,000 in October 2022.
The latest data showed students from China made up 26% of total enrollments — the largest portion from a single country.
“If education exports to China revert to 2019 levels, the impulse to real GDP would total 0.4%-pts, a useful impulse in the environment of slowing household consumption though not a panacea to prevent a growth deceleration,” Kennedy wrote.