How bad is COVID-19 for the Australian Economy?

What will be the impact of COVID-19 on the Australian economy? 

The Australian Financial Review asked this very question of a number of economists.

The answer? No-one knows for sure. But economists generally believe it will be very negative for employment and economic growth in Australia.

The AFR article found that economists forecast Australia’s unemployment rate could rise from its current rate of 5.1 per cent (as of February 2020) to 9.4 per cent. This would represent 1.22 million people out of work.

In addition, economists stated that the economy could shrink by 3 per cent. Not to 3 per cent, but by 3 per cent. This would take the Australian economy into negative economic growth and a recession. According to journalist Aaron Patrick, this would create “the worst recession most living Australians have experienced”. 

The AFR article. Click through to read it.

Let’s take a look at some of the individual economists’ views. The article spoke to UBS (an investment bank) economist George Tharenou who said that unemployment could reach 10 per cent if businesses weren’t quickly able to operate as normal. 

As of late March, restaurants and cafes around me are restricted to take-away only which has significantly reduced their daily revenues and led to them standing down or letting go of staff. My local cafe has gone from 80 seats and maybe 10 staff to no seats and four staff.

Independent economist Saul Eslake, who was chief economist at ANZ Bank, said that unemployment would peak at 7.5 per cent as the Federal Government’s stimulus packages helped business keep on staff.

As of late March 2020, the Morrison Government had announced two stimulus packages worth around $84 billion with a range of measures targeting businesses to help them retain staff during this challenging time.

Employment is rightly regarded as a major issue right now. Just think about the flow on effects of a significant rise in unemployment. Consumers lose confidence and incomes, which reduces demand for goods and services, which could drive unemployment even higher. Derived demand (the fact that demand for labour is derived from the demand for goods and services) would work in a negative sense. 

This is why government intervention to keep employment as robust as possible is so important right now.