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Economic damage from the COVID-19 outbreak could be worse or at least as bad as recession during the global financial crisis, reported IMF’s Chief Kristalina Georgieva recently. Following a G20 ministerial call on the coronavirus emergency, Georgieva stated that the global growth outlook for 2020 remains negative; however, recovery is expected in 2021.
Emphasising on severe economic impact from the coronavirus pandemic, she stressed that it is paramount to strengthen health systems and prioritise containment for the stronger and quicker recovery.
Besides IMF Chief, the OECD Secretary-General Angel Gurria has also expressed concern over the escalating spread of deadly coronavirus. Calling coronavirus health crisis as the biggest financial, economic and social shock of the 21st century, he cautioned that the world would take years to revive from this major economic crisis.
COVID-19, which has so far infected over 380,000 people in 168 countries worldwide claiming lives of more than 16,000 people, is certainly a subject of concern. The pandemic has emerged as the biggest threat to the global economy, which might soon enter into recession amidst crashed stock markets, halted business operations, damaged travel, leisure, airlines and entertainment industries to name a few, distressed industrial production, slumped oil prices and liquidity constraints.
No wonder, the contagion has also wreaked havoc on the Australian economy, which might slip into recession for the first time in the last 29 years.
Australian Stock Market Takes a Drag
The Australian benchmark index S&P/ASX 200, has nosedived by ~32 per cent (up till 24th March 2020) since the nation recorded its first coronavirus case on 25th January 2020.
Besides S&P/ASX 200, the global stock exchanges including Dow Jones Industrial Average, the FTSE and the Nikkei have also gone down in flames since the beginning of coronavirus outbreak on 31st December 2019.
The markets are hit by the coronavirus-induced panic selling amidst rising COVID-19 cases and strict lockdown measures undertaken worldwide.
Job Scenario Appears Bleak
With the Australian government heightening restrictions to curb the spread of the pandemic, many Australians are now out of work. More than 85k citizens lost their jobs recently when the federal government announced the closure of all gyms, bars, cinemas, pubs and other gathering spots in Australia. Most of the people who suffered owing to the widespread layoff, belong to the tourism and hospitality sector.
Amidst worsening spread of COVID-19 and more extensive business closures, one of the big four banks, Westpac Banking Corporation (ASX:WBC) has revised its unemployment rate forecast from 7 per cent to 11 per cent by June 2020. The bank now anticipates more than 810k job losses by June, resulting in contraction of 3.5 per cent in Australia’s economic growth.
The bank mentioned that sectors, including arts and recreation services, accommodation and food services, manufacturing, retail trade, real estate services, transport and warehousing, construction and professional services, are most likely to suffer from economic disruptions.
Moreover, a group of economists is also projecting the jobless rate to surge to over 9 per cent in 2020, leading to a contraction of over 2.8 per cent in the nation’s economy. These projections further validate that Australia might face its biggest economic shock in 2020 due to COVID-19 pandemic.
Business Activity Considerably Falls in March 2020
The outbreak of COVID-19 has resulted in a sharp fall in business activity at the Australian firms, reveals Commonwealth Bank of Australia’s (CBA) latest Purchasing Managers’ Index (PMI) report. For March 2020, the index has recorded its weakest reading since the beginning of survey in 2016.
The index was noted as 40.7 for March, considerably lower than the reading of 49 observed in February 2020. The report stated that the outbreak resulted in a steep fall in business activity in March, especially in the service sector, wherein falling new business, cancellation of events and fear over the virus ran to a harsh decline. The service sector was also affected by significant contraction in new business from abroad in the wake of travel restrictions for tourists.
Moreover, the report highlighted that the coronavirus pandemic has resulted in a sharp decline in confidence around the projections for output growth over the coming year, among the Australian firms.
CBA Chief Economist, Michael Blythe commented:
It is apparent that coronavirus outbreak will have a significant impact on the Australian economy and the financial market; however, one cannot deny that the government and policymakers are pulling out all the stops to minimise the financial and economic disruption resulting from the virus.
New $40 Billion Funding Pool Passed in the Australian Parliament
The Australian parliament has recently given the Morrison government access to the new $40 billion funding pool for urgent unforeseen spending, besides approving $84 billion in stimulus measures.
The parliament passed the government’s most-crucial $84 billion economic support package after the opposition Labor party gave the go-ahead to Coalition government for passing its recently announced $17.6 billion and $66 billion stimulus packages.
In addition to the federal government, the RBA is also trying its level best to unstick the market glued with coronavirus fear. The bank has lately injected $6.9 billion into the financial system and mentioned it will purchase $4 billion in government bonds to prevent the nation from an economic fallout.
Undeniably, the coronavirus panic has become a crucial challenge for the Australian economy and financial market, raising the threat of a deep recession resulting from an economic fallout. However, the RBA and the federal government are sparing no efforts to support the economy and retain Australia’s unparalleled growth trajectory.
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