The Economy: Not As Bad As It Could Have Been
Treasurer, Josh Frydenberg, is due to make a major economic statement to Parliament next week but he delivered a prelude to the National Press Club on Tuesday. The headlines from the speech were that the coronavirus crisis was costing the economy $4 billion a week or $50 billion for the June quarter. On the other hand, if Australia had adopted the New Zealand version of the lockdown the losses would have been approximately $120 billion, according to Treasury modelling.
The Australian emergency measures were introduced on 15 March when the first national cabinet met. The next day the stock market collapsed and lost 30% of its value over the next three weeks. Treasury estimated that school and childcare closures for three months would cost the economy $34 billion because more than 1 million people would be unable to work.
As the Government’s stimulus package was rolled out the message to Australians according to the Treasurer was “we have got your back”. The objective of the Jobkeeper programme was to keep people working in a situation where employers couldn’t afford to pay full wages.
Treasury is predicting that the fall in GDP in the June quarter would be 10% rather than 24% if the European model of total lockdown was followed. The Swedish model of keeping the economy open was also rejected because the death rates in Sweden were 70 times those in Australia.
The economic indicators are likely to get worse before they get better. Victoria has had the steepest fall in consumption because it has had the most extreme lockdown measures. This was reflected in higher state unemployment. The forecast fall in GDP means that the unemployment rate is likely to double. Without the Jobseeker programme, it would have risen to 15%
The impact on the global economy is worse than the global financial crisis. The fall in global GDP is likely to be 3% compared with 1% during the GFC. The US Federal Reserve is releasing $3 trillion in monetary stimulus this week to help offset a recession.
As restrictions are lifted, businesses will have to rebuild their supply chains which will require capital that is scarce at the moment. The fact that Australian companies have the second-highest company taxes in the developed world will inhibit their capacity to raise money. If Australians are to start spending again they have to be confident that they can get the goods they need which mean companies will need to rebuild their inventories but without tax cuts, this will be tough.
The Treasurer says unemployment goes up in elevators but comes down the stairs. The sooner people can get into work the more likely it is that the economy will avoid a residue of long-term unemployed.
“There is now a bridge to the other side”, the Treasurer told his audience. Government assistance has boosted business confidence according to a Reserve Bank survey.
Australia must push towards a new, more efficient, high growth economy. The economic fundamentals are strong however the income shock of the pandemic will hit the Government’s balance sheet and will have to be dealt with. High growth and higher productivity is the way out of the debt burden. But the Treasurer says the Government won’t be looking for new reforms: it will look at existing proposals with fresh eyes.
According to the Treasurer, the pandemic has seen the best of Australians. There is the opportunity to continue this collaboration into the future. He said Australia’s resilience will enable it to emerge from the crisis as a stronger and more caring society.