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Australia could lose $100 billion if it is unable to prevent a second wave, economists at Deloitte warn

Jack Derwin
  • The cost of a second wave of COVID-19 infections has been put at $100 billion by Deloitte economists.
  • Describing a potential resurgence as "a disaster", Deloitte Access Economics partner Chris Richardson forecast that even without one the economy would struggle to recover.
  • "Families are struggling with the toxic trio of high debt, high unemployment, and low confidence, and 2020 is a shocker of a year. The ranks of the unemployed will be badly swollen for a while," Richardson said.
  • Visit Business Insider Australia's homepage for more stories.

Carelessness could come at a tremendous cost, Australia has been warned, as the country comes to grips with the reality it has not vanquished COVID-19 from its shores.

With Victoria shutting down its border with New South Wales for the first time in a century, Deloitte economists said in their quarter business outlook they were watching "really carefully".

"A genuine second wave would be a disaster – whether or not it was accompanied by substantive second waves in other nations," chief author Chris Richardson wrote.

Noting Deloitte had projected a range of scenarios, Richardson concluded that "a second wave would hurt lives and livelihoods".

"On livelihoods, the lost national income would be over $100 billion in the next couple of years alone, and there would be ongoing damage in both jobs and joblessness. The stakes are really, really high," he said.

While Australia's deputy medical officer Michael Kidd has said that the spike in Victorian cases does not yet constitute a second wave per se, the threat and the measures being undertaken to prevent one are serious.

So too is the potential economic cost. Based on the assumption that Australia isn't headed for a second wave, Deloitte is still expecting Australia's economy to contract by 0.1% this year and 0.4% next year, marking the longest contraction since the 1980s recession.

While forecasting a resurgence of 5.3% and 4% in the two years following, Richardson warns the recovery won't be easy on the average Australian.

"Families are struggling with the toxic trio of high debt, high unemployment, and low confidence, and 2020 is a shocker of a year. The ranks of the unemployed will be badly swollen for a while," he said.

"Australia and the world are ‘printing money’ hand over fist. But the very last thing you need to worry about is any lift in inflation. Demand is dead as a doornail, and wage gains – already weak – are set to fade further."

Forecasting unemployment to average 8.2% over the next 12 months, Deloitte expects it won't even get to back to 5.1% before 2025.

It comes on the same day ANZ released its job ad data, painting a mixed picture of the Australian labour market.

Advertised positions bounced by 42% in June after COVID-19 sparked a decline. Ad levels broadly remain 44.6% below where they sat last year. Still, it's a marked improvement on the 62.3% fall seen in April.

Interestingly, the strongest growth on job sites like Indeed has been in the tourism and hospitality sectors which have seen some of the biggest contractions throughout the lockdown.

"This is a good sign for at least some of the 381,000 workers in accommodation and food services and arts and recreation who lost employment between February and May," economists Catherine Birch and Shaurya Mishra wrote in a note issued to Business Insider Australia.

However, while momentous, real growth from here on out is far from guaranteed.

"After an initial bounce, we expect the recovery will be a lot slower. There have been a number of recent large-scale lay-offs announced across a wide range of sectors, including travel, retail, media, consulting, and education," the pair wrote.

"And the rise in new COVID-19 cases in Melbourne and return to lockdowns in several postcodes also pose a risk to the pace and timing of the recovery."