In March, the Australian Bureau of Statistics reported that Australia’s economy had contracted by 0.3%. This was before the coronavirus disruption hit Australia. According to Josh Frydenberg, Australian Treasurer, the decline is mainly caused by a decrease in household income and consumption.
He said, “This is the largest quarterly decline in consumption in 34 years – with 10 of the 17 consumption categories falling. Spending on transport services and hotels, cafes and restaurants experienced their largest falls on record.”
With the pandemic then forcing businesses into lockdown, it was no longer a question as to whether Australia would record a negative number for its GDP – but when.
The situation worsened very early on in the stages of lockdown, with several knock-on effects of the protective health measures. Australia very quickly lost the majority of its international students, for example, who according to Statista contribute more than $12 billion AUD to the country’s GDP. Hospitality and retail venues shut up shop within 24 hours across the states, with little knowledge of when they could re-open or how to operate during Covid-19. As the government quickly scrambled together to get Covid-19 measures in place announce stimulus packages, many people lost their jobs overnight.
The uncertainty now lies in how and when Australia is going to bounce back from the negative effects of the virus in addition to the pre-existing economic problems.
Much worse than 2008
A recession is not exclusive to Australia. The International Monetary Fund (IMF) predicted that the global economy will contract by 3%, much worse than the 2008 Global Financial Crisis (GFC).
Mr Frydenberg remained positive however, saying that the Australian economy will return as the restrictions ease out.
“Nine consecutive weeks of consumption rising will make up 95% of the losses that we saw in March,” he said.
“As restrictions are eased, people will start to go out to the pub or to their shopping centre.”
Now, at the stage we’re currently at with the pandemic, the IMF has decreased its prediction over Australia’s recession from 6.7% to 4.5%.
Let’s not forget, however, that government support (such as JobKeeper) ends in September and this is likely to result in a new wave of uncertainty for recovery predictions.
Economic professor at the University of Queensland, John Quiggin, tweeted that IMF’s prediction towards post-coronavirus global finance is still too pessimistic.
“If the virus is eliminated or effectively contained, businesses like restaurants and retailers will reopen quickly, and consumers whose spending has been constrained by the lockdown will be keen to patronise them,” he wrote in Inside Story.
On the other side, according to a macroeconomics writer David Llewellyn-Smith, as long as the virus is still there, the easing of the lockdown won’t bring back the economy to its previous state.
“In short, the virus does the economic damage not the lockdowns,” he said. “This is why Australian borders should remain watertight shut to international students, temporary workers and all other migrant segments.”
The impact of the recession
As reported by News.com, the main impact of a recession is the increase in unemployment. During the recession, demand will decrease and as such, so will revenue. The resulting budget cuts that businesses will make will undoubtedly include letting people go.
Based on Trading Economics’ data, Australia currently has a 7.1% unemployment rate, 2% higher than in March. Now, about 6 million Australians are relying on JobSeeker and JobKeeper payments. That’s half of the Australian working population.
Both JobSeeker and JobKeeper are government subsidies for those who are currently unemployed. JobSeeker gives $550 per week to those who are currently looking for a job. Meanwhile, JobKeeper payments are government subsidies to companies so they can still employ staff during the pandemic.
However, Prime Minister Scott Morrison said that both subsidies are going to be cut by the end of September. He also said that he’s planning to cut support back by half. The first reason for that is that the current support available is not sustainable, but the second reason is more shocking.
According to the Prime Minister, the high rate of subsidies discourages people to find new work. This is because the salary is lower than the government’s support.
“Some of [the small businesses] are finding it hard to get people to come and take the shifts because they’re on these higher levels of payment,” said PM Morrison. As reported by news.com, he continues: “And so we’ve just got to make sure that we continue to provide what is a reasonable level of support in the middle of the worst recession we’ve had since the Great Depression.”
This raises critique from many sides, especially from those who are unemployed.
“Why is his only anecdotal feedback from businesses? Why hasn’t he talked to people who are unemployed about what is happening?” said one unemployed person to The New Daily.
Last Wednesday, Australian Unemployed Workers Union released a report, showing that while there are 1,640,773 unemployed Australians, there are only 91,991 jobs available.
National Skills Commission also released a report that shows that, currently, only 22% of employers are recruiting.
No quick fix
Economist Mr Quiggin added that the unemployment rate wouldn’t just ‘snapback’ when the worst of the pandemic is over.
“Thousands of hardworking Australians, many of whom have never been unemployed before, will be thrown out of work – some of them for a long time,” the economist wrote to The Conversation.
Mr Quiggin proposed a liveable income guarantee. This means the government should start paying those who work in unpaid jobs.
“Many people already productively contribute to society in different ways, such as caring, but their work is largely obscured by the narrow measure of formal employment,” he wrote.
“There are many possibilities of what contributions could be included and ‘paid for’ under a liveable income guarantee. Most of them have some precedent but have not been considered as part of a comprehensive program of social participation.”
It’s clear that the economy will not heal quickly from the recession we are entering, as we’ve already seen from Victoria’s second wave and lockdown. The unprecedented circumstances of the virus make planning and stimulus measures much more difficult to introduce.