According to JPMorgan, the Australian economy could greatly benefit from China’s shift towards ending its zero-Covid policy in the next two years.
The bank’s chief investment strategist, Tom Kennedy, said that the largest potential upside from this reopening would be in the services sector, specifically in Australian tourism and education exports, as China is the largest consumer of these.
The bank estimates that a full recovery in Australia’s tourism will add 0.5% to its GDP, and the return of international students from China will add another 0.4%, amounting to nearly a full percentage point in the nation’s economic growth, according to a report by CNBC.
Full tourism recovery with China
Despite lifting Covid-related travel restrictions in July last year, Australia’s short-term overseas arrivals are still significantly lower than pre-pandemic levels.
According to the Australia Bureau of Statistics, in October 2022, there were 430,470 short-term trips made to Australia, which is 44% lower than the same month in 2019, when the country received over 1 million short-term visitors.
Most visitors in October came from New Zealand, the U.K., and the U.S., with China needing to be listed in the top 10 countries of origin. In 2019, China accounted for 15.3% of all inbound tourism in Australia, making it the largest source of short-term visitors.
On average, Chinese tourists also spent four times more than tourists from New Zealand, the second-largest source of inbound tourists. JPMorgan predicts that the tourism-related consumption impulse will be spread over 2023 and 2024.
According to the chief investment strategist, the absence of Chinese tourism has negatively impacted real GDP, even though the duration-adjusted spending numbers may be less significant.
Students from China
JPMorgan predicts that the enrollment of international students will increase this year.
According to data from Australia’s Department of Education, in 2019, more than 253,000 international students arrived from China from January to October. This number decreased to approximately 173,000 in October 2022.
The data shows that students from China made up 26% of total enrollments, the largest portion from a single country.
The chief investment strategist mentions that if education exports to China revert to 2019 levels, it would add 0.4% to real GDP, which would be a positive contribution in the context of slowing household consumption. However, it would not be enough to prevent a growth deceleration.
Have you heard about how the slow return of international travel and the absence of Chinese tourists are affecting Australia’s economy? It’s crucial for us to adapt quickly and find new ways to overcome these challenges.