Editorial
Now to confront the economic wreckage
When the COVID-19 outbreak was emerging as a real threat to Australia, the political narrative from Prime Minister Scott Morrison was that we were foremost facing a health crisis, not a financial crisis. Of highest concern was the potential death toll and capacity of the health system, but the economic impact was also weighing heavily on politicians' minds. It was a time when flattening the curve was an ambition, not a reality.
Fast forward to today and it's a very different story. Australia has done exceptionally well on the pandemic front, with only 12 new infections nationwide reported on Sunday. But the financials of the economy are dire, with alarming figures starting to surface. Any suggestion that the economy will quickly bounce back now that the worst of the health crisis is hopefully over is very much wishful thinking.
Treasurer Josh Frydenberg has some tough years ahead dealing with the economic fallout of the pandemic. Credit:Alex Ellinghausen
On Friday the Reserve Bank put the detail to the devastation. Unemployment will hit 10 per cent by June and is expected to stay above 8 per cent for some time. Wallets have been shut tight, with household spending heading south by 15 per cent in the same period. Housing investment is looking worse, down by 17 per cent. All this adds up to an economy shrinking by 8 per cent in the year to June and a record budget deficit expected to hit an eye-watering $130 billion.
Australia is hardly a lone soldier on the economic front. Only 51 per cent of adult Americans are in work, with more than 20 million jobs lost last month alone, a number many times worse than anything encountered since the Great Depression. The European Union's economy is in retreat by more than than 7 per cent this year, the worst downgrade in its history. China, the third centre of gravity for the world economy, is also facing some lean times despite being first to kickstart its economy. Add in the rest of the world, and the International Monetary Authority has the global economy going backwards by 3 per cent.
While such economic gloom is forcing many countries to recast their record books, Australia should be in a better position than most. US President Donald Trump is urging state governors to get people back to work even as the number of COVID-19 infections is on the increase in many parts of the country and the death rate is still hovering around 2000 a day. Millions are going back to work in Italy despite a daily death rate of about 200. The risk of those countries having to reverse course is immense.
With the curve currently under control in Australia, and intensive care doctors saying Australian hospitals can safely cope with any surge in COVID-19 cases sparked by the reopening of the economy and easing of restrictions, we will hopefully avoid worst-case scenarios.
But there are some hard yards ahead. While the stage-three lockdown has lasted only for weeks, the ripple effect will touch people's lives for years. Such factors as the birth rate, which is expected to drop as people have fewer children during tough economic times, and an expected drop in the number of migrants coming to Australia will put a further drag on the economy.
Fingers crossed, the worst of the COVID-19 outbreak is behind us. Such a best-case scenario would allow governments to fully confront the economic wreckage wrought by the pandemic. For while it was always clear this was a health crisis, it's now very clear it is also an immense financial crisis.