There’s one key ingredient in economic growth that’s been largely missing since the global financial crisis: confidence.
Both business and consumer confidence.
Right now, of course, both are struggling to return to pre-COVID-19 levels.
And the unfortunate reality of coronavirus is that confidence is the one thing it’s killing.
This is because it’s a deadly virus, there’s no vaccine… yet, and it has a habit of re-emerging even after it’s been supposedly snuffed out.
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Australia has done a marvellous job containing the virus, but all it takes is complacency and a slip-up, and you are vulnerable to an outbreak.
That’s what we’re seeing in Victoria right now. And every day Victoria struggles to contain outbreak hotspots, the threat of a state-wide lockdown remains.
And as you impose a lockdown, you hurt economic growth.
So how bad could it get?
Economic basket case
There are two broad measures we use to track the economy.
The first is Gross Domestic Product or GDP (how much we churn out every year), and the second is the unemployment rate.
GDP, according to economist David Bassanese, is expected to contract 4 per cent this year. He also sees the unemployment rate reaching 8 per cent, as does Treasury.
That’s without Melbourne or Victoria going into lockdown.
Here’s the kicker. Melbourne and Sydney account for about 43 per cent of Australia’s population. They also contribute to roughly 40 per cent of overall economic growth.
I won’t labour the point, but if a resurgence of coronavirus cases sees stage three lockdowns in place for Sydney and Melbourne, or worse still, NSW and Victoria, GDP would fall by “a lot”, as one Melbourne-based economist told me on background.
Should we be worried?
Last week, on almost every day, Victorian health authorities announced 60+ new coronavirus cases.
Towards the end of the week it was clear the spread of the virus had extended beyond Melbourne’s hotspot suburbs.
It also became clear that thousands, of residents were refusing testing.
My point: despite the rate of Victorian infections showing signs of stabilising, at times, it could easily get out of control.
We also know now that the two weeks stay in Hotel Quarantine is no panacea for spreading the virus.
Two men now, one in the Northern Territory and the other in NSW (Woolworths Balmain worker), have tested positive after spending time in Melbourne in isolation.
This virus does not discriminate, and it does not follow our rules. It re-emerges without notice, and if that re-emergence occurs in a major metropolis, economic growth and jobs are at risk.
So, yes, that’s worth worrying about.
There’s reason to be hopeful
At the start of the pandemic it was clear we had both a health and an economic crisis.
Saving human lives was the priority so the government essentially put the economy into the deep freeze.
There was a big kerfuffle at the time that lives and livelihoods would be lost in the process, and that deserved consideration.
While true, the argument I’ve made all a long is that if you lift restrictions too early you just get many more deaths and the economy is hit harder.
Now, though, times have changed. We know what a recession looks and feels like in the 21st Century and it ain’t pretty. That’s why the Scott Morrison is now leaning more towards re-opening the economy.
He’s accepted that outbreaks of coronavirus will be part and parcel of that.
It’s hoped that we will be able to deal with coronavirus like a game of whack-a-mole, and the economy can gradually begin to thaw.
The next two weeks will be critical
So there you have it. Just when we thought Australia could hold onto its title as the “lucky country”, coronavirus raises its ugly head again.
The next two weeks will be critical. Victorian Premier Daniel Andrews said on Friday he was pleased to see signs of stabilisation in the virus infection rates. This is good news, but it’s sort of meaningless when you consider how easily and quickly the health landscape can change.
Disturbingly, we now know that over 10,000 Victorians have refused to be tested. It’s understood some of this cohort think a government official sticking something up their nose at their front door is part of a wider conspiracy.
Can you see now how delicate this situation is?
It’s my hope common sense and good policy will win out in controlling COVID-19 in Victoria and NSW, but that’s far from guaranteed.
That means, of course, that an economic rebound is far from guaranteed. Indeed, a deeper than expected recession remains a possibility.
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