- Australia has not seen a recession since 1990, however, the long trail has now come to an end, due to the current COVID-19 economic downturn, which has posed a crisis for the country to overcome.
- The National Cabinet’s three-step plan to relax COVID-19 restrictions have started propelling normalcy at staged levels.
- As per the RBA, economy is expected to record a contraction in GDP of ~10% over the 1H20, total hours worked are expected to decline by ~20% and unemployment rate is forecast to rise to ~10% in June Quarter.
- With the economy reopening and Government incentives pouring in, stronger economic recovery is possible, if further improvements in controlling the virus are seen in the near term.
Australia is the only OECD economy that has not witnessed a recession since last three decades. While the Global Virus Crisis (GVC) has brought Australia to the crossroads once again, will its robust economy efficiently combat another catastrophe?
Today, the world is perhaps facing the largest and fastest global economic contractions in living reminiscence. The COVID-19 pandemic has suddenly upended lives, jobs, and economies all across the globe and what it continues to reveal is enormous uncertainty. Who would have ever thought that a coronavirus, the invisible enemy as some may say, has been one of the biggest threats to almost every aspect of lives?
The pandemic is imposing high and soaring human costs, and essential protection measures are relentlessly impacting economic activity globally.
COVID-19 Situation in Australia
COVID-19 was initially confirmed in Australia in late January 2020. Currently, there are over 7.1k confirmed cases, 103 deaths and over 6.5k recoveries. Over 1.1 million COVID-19 tests have been conducted across Australia. The COVIDSafe app is available for voluntary download to speed up contacting people exposed to the deadly virus. While overseas travels remain banned, and any arrivals in Australia are quarantined for 14 days.
From 22 March 2020, Australia saw the progressive introduction of major social distancing and other business-related restrictions to slowdown the spread of COVID-19
On 8 May, the National Cabinet announced a three-step plan to relax COVID-19 restrictions. Consequently, states and territories have begun easing regional restrictions to varying degrees while social distancing measures are still in place.
Economic Impact of COVID 19- Australian Overview
Though the novel coronavirus has been recognised as a health emergency globally, its economic repercussions have been devastating. According to the International Monetary Fund (IMF), the global economy is projected to contract severely by 3 per cent in 2020, which is much worse than the contract witnessed during the 2008–09 Global Financial Crisis (GFC).
WTO (The World Trade Organization) anticipates world trade to decline by between 13 percent and 32 percent this year owing to interruptions in normal economic activity and life around the world due to coronavirus.
In Australia, the impacts were first felt by domestic businesses - students and non-student tourism (for example). As weeks flew by in the virus’ treacherous realm, inventories began to run low, manufacturing global supply chains progressively became affected and the Australian Dollar depreciated (against the United States Dollar) to levels not observed since the GFC.
Then came in other economic factors- unemployment levels are record high, a worrying CPI, retail suffering from the virus heat and bothersome GDP predictions. Before we dive into what is the improvement/ decline probability of each with time, let us acquaint ourselves to where Australia currently stands, economically-
- Unemployment rate grew to 6.2 per cent in April 2020, up by 0 percentage point from 5.2 per cent in the previous month. Total unemployment reached 823.3k, after an increase of 104.5k unemployed people in the market, on a seasonally adjusted basis
- CPI rose 0.3 per cent in the March 2020 quarter, compared to a rise of 0.7 per cent in the December 2019 quarter
- GDP- the Australian economy grew by 0.5% in seasonally adjusted chain volume terms in the December quarter 2019
- Australian retail turnover fell 17.9 per cent in April 2020, seasonally adjusted, according to preliminary retail trade figures released by the Australian Bureau of Statistics (ABS) in May, marking the strongest seasonally adjusted fall ever published from the Retail Trade survey
- On 28 May 2020, ABS reported that COVID-19 has forced 70 per cent of Australian businesses to change how they operate
Australia’s Outlook As Restrictions Ease
The pandemic is having a noticeable impact on global economic growth.
A study by PWC states that over a one year period, COVID-19 pandemic could slash Australia’s GDP by $34.2 billion. Besides this, household consumption in Australia might drop by $37.9 billion. 2020-21 tax revenue would fall by $25.8 billion and the Commonwealth Government Budget’s underlying cash balance would fall from a projected $6.1 billion surplus to a deficit of $24.8 billion demonstrating a $30.1 billion swing.
A recent ABS report projects that government imposed restrictions are anticipated to continue to have an impact, with businesses reporting they believe some degree of effect from social distancing methods (71 percent), curtailment on trading (63 percent) and travel constraints (50 percent) in the upcoming 2 months period.
A report by the RBA states that headline inflation is likely to be negative in the upcoming June quarter period. Also, household consumption is projected to drop by nearly 15% in the upcoming June quarter period. The outlook past June quarter will depend on the degree to which activity and the labour market remains to be influenced by measures like social distancing and additional curbs related to containment.
But not all seems grim- the economy has started to reopen, and PM Scott Morrison and his efficient team members have declared several economic and financial plans that aims to protect businesses from going bankrupt, along with containing levels of unemployment well in control. The stimulus package amounts to $ 320 billion (which makes over 16 per cent of Australia’s GDP).
The Central Bank (RBA) has processed huge amount of money in billions of dollars as government aid to both houses and companies and ensured that the payments system is working well for people, and that banknote supply is maintained. The Bank believes that the mid-March package is working aptly, and it is facilitating to build the necessary bridge to Australia’s recovery.
However, a shadow cast by COVID 19 will remain, believes Mr Lowe. Besides this, with major sectors like tourism, retail, education and entertainment reeling under the virus plight, a prolonged economic hardship is foreseeable- an important challenge to both government and society.
COVID-19 is first ever health related crisis which compelled the Australian Government to impose unprecedented methods. Unavoidable declines in trade and output might have painful consequences for households and businesses, but with the economy reopening and normalcy returning in a staged manner, will Australia be able to repeat history and not stumble upon another crisis?
Time will tell.
(All currency reported in AUD unless otherwise stated)
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.