Will the coronavirus pandemic cause a recession in Australia?
Yes, unfortunately, coronavirus will likely cause a recession in Australia, and across the world, according to Harald Finger, IMF mission chief for Australia.
A recession is marked by a temporary economic decline during which trade and industrial activity are reduced. With lockdowns still firmly in place, the widespread loss of jobs and large stimulus packages being deployed across Australia and further afield, it is hypothesised the economic downturn caused by COVID-19 could closely mirror the Great Depression.
The below chart from the IMF compares the ‘Great Lockdown of 2020’ to the Global Financial Crisis of 2009.
Unemployment, commercial slowdowns, government spending and weak consumer confidence are some of the leading factors that will reinforce a recession in Australia caused by coronavirus.
According to the Grattan Institute, Australia’s unemployment rate is expected to rise between 10-15% during the coronavirus outbreak. As a direct result of the coronavirus outbreak, 14-26% of Australian workers could be out of work.
Over 50% of all workers in the hospitality industry may lose their livelihoods, as well as those working in the arts, education and retail sectors. Low-income workers are twice as likely to lose their jobs in 2020.
Women and younger people are also more likely to be affected by unemployment due to the likely industries in which they work, which may make social distancing unavoidable.
The JobKeeper wage subsidy package will need to be supplemented once again in the future due to the ongoing economic shock that is predicted to affect Australia.
Commercial slowdown and government spending
Restaurants, pubs, clubs, cinemas, gyms, casinos, nightclubs, indoor places of worship and indoor sporting venues were told to shut doors approximately four weeks ago, with the view that closures could last for six months.
The federal government has rapidly deployed additional payments for job seekers, JobKeeper wage subsidies for businesses big and small, and rent allowances since the beginning of the coronavirus pandemic.
The Morrison’s government response to coronavirus will be worth an estimated 3.3% of Australia’s gross domestic product this budget year and 6.1% next year, according to the ABC.
According to the Morrison government, it is spending $7,600 per person to keep the Australian economy ticking over.
Prior to the coronavirus outbreak, consumer spending had already been slowing as a result of falling wages and the effects of the Australian bushfires. Now with the onset of more and more uncertainty, as well as rising rates of unemployment, consumer confidence and purchasing is likely to fall further.
At this point, there is no real way to predict the full extent of what’s to come.
The International Monetary Fund predicts the Australian economy will shrink by 6.7% in 2020, due to lockdown measures that have seen a number of key industries put out of commission for the foreseeable future.