The Covid-19 health crisis has changed the economy forever.
How businesses function and how we consumers spend and invest our money will be different.
And don’t kid yourself, the economic fallout from the crisis is not over yet, even if we are opening up the pubs, restaurants, sporting events and the state borders.
There will be a legacy for many years of high unemployment, high underemployment and low wages growth. Unless policy makers learn the lessons from the 1930s Great Depression and pledge to pump prime economic activity, the economy will remain sub-par for at least the next few years.
Now is not the time to be talking about financial ‘belt tightening’ when there are around 3.5 million Australians unemployed, underemployed or who have recently given up looking for work. On the contrary, the government needs to loosen the purse strings and get money into the economy so that jobs are created for these people.
Covid-19 will see more people work from home. The commute from the kitchen to the workplace will be a matter of seconds, a far cry from the tedious wait in traffic, sitting on the slow train or bus … and then having to do it all again to come home.
Firms will need to make sure the home workers have high powered technology and secure access to the material needed to do their job. Productivity is likely to get a boost. Meetings will be held on Zoom, Skype or some other conferencing platform.
What else will it mean?
If more of us can work from home, why then do we need to borrow huge amounts of money for a mortgage to buy a house near the CBD when we can enjoy a different lifestyle working in a regional centre where housing is cheaper and the lifestyle is lower stress? Will we see house prices boom in the regional towns and cities?
Some companies have been agile, adaptable in the crisis. Gin and whiskey makers switched to making hand sanitiser. Clothes manufacturers made hospital-grade face masks and protective gowns. Fancy restaurants switched to take away and home delivery. Retailers had to urgently fast-track online sales and distribution as the bricks and mortar stores closed due to the virus.
Such agility will be needed in future.
Get ready for bigger government
Covid-19 has also redefined the role of government. While not perfect, where would we have been without JobKeeper, JobSeeker, a period of free childcare and mortgage holidays from the banks?
While the economy is suffering from a deep and particularly nasty recession, these measures had some impact in cushioning the blow.
It begs the question, if the government can help the economy in bad times, should we expect our governments to keep doing good things in good times?
The obvious answer is “yes” which suggests that when the coronavirus pandemic fades, voters should expect the government to have policies that grow the economy and maximise employment opportunities to the point where everyone who wants a job, can get a job.
Other changes post-coronavirus
Even with interest rates at staggeringly low levels, consumers seem more inclined to pay down debt rather than take on more debt. This trend is likely to be maintained as consumer caution, weak wages growth and relatively high unemployment undermine the willingness and ability of consumers to borrow. With interest rates likely to remain low for an extended period, debt reduction could be substantial in the years ahead.
Immigration levels are likely to be lower for longer. A key source of economic growth has been taken away from Australia and importantly, its housing market.
Slower population growth will reduce potential GDP growth by around 0.75 per cent per annum. There will be fewer consumers which undermines demand and the need for new housing construction to be maintained at pre-coronavirus levels. There will also be a lesser need for infrastructure in these circumstances.
The economy and the way many of us do things have changed because of the coronavirus.
Slower growth, bigger government, working from home, greater business agility, weaker housing, higher unemployment and lower interest rates are just some of the changes that are likely to be around for some time.
It will be interesting to see how society, government and businesses respond to these changes. Those with vision and an ability to accept the changes will probably do well in the new environment.