Australia (9news)

Great Depression-sized economic shock coming down pipeline

By June 17, 2020 9 Comments
An “unprecedented” economic shock is hurtling down the pipe towards Australia because of the coronavirus pandemic, an economist has warned.
Grattan Institute household finances program director Brendan Coates said the “second wave” impact set to follow the initial shutdown could be of similar devastating magnitude.
People queue up at Centrelink in Rockdale, Sydney after many people have lost their jobs due to the coronavirus lockdowns
People queue up at Centrelink in Rockdale, Sydney after many people have lost their jobs due to the coronavirus lockdowns(AAP)
Some estimates have suggested a quarter of all economic activity has been curtailed by the shuttering of businesses.
Each month the restrictions apply, 2 per cent is summarily wiped out from Australia’s annual gross domestic product.
“The size of the shock that is coming down the pipe to the economy from COVID-19 is pretty unprecedented,” Mr Coates said in a recent Grattan webinar.
“It is certainly larger than anything we’ve seen since the Great Depression.”
Treasury has estimated 1.4 million Australians will be unemployed by June, a startling figure of 10 per cent but lower than some had first feared.
If unemployment reaches 10 per cent, it will be the first time this measure has hit double figures in 26 years. Australian consumer confidence has recently plunged to record lows.
Speaking on Today, prime minister Scott Morrison described the unemployment models being pushed across his desk as “heartbreaking”.
But Mr Coates said early research by his team at Grattan Institute indicated 20 to 25 per cent of jobs were disappearing.
“This is going to translate very differently into the unemployment rate,” he said.
By definition, unemployment rates are calculated on people actively looking for work.
More than 800,000 businesses have already signed up for JobKeeper’s wage subsidy scheme.
Anyone eligible for JobKeeper will not report as unemployed.
READ MORE:Australia’s $1500 ‘Job Keeper’ payment explained: How it works
“The JobKeeper package will actually obscure a lot of people who are otherwise unemployed,” Mr Coates said.
“They won’t necessarily show up in the numbers … that will obscure the hit that is still there in the underlying economy.”
It is unknown how many businesses will have gone bust and won’t reopen once social restrictions are eased, leaving a bubble of former workers effectively unemployed.
Mr Coates said the best and worst case scenarios will depend on the duration and intensity of the public health response.
“That is the most important thing and also the most uncertain,” he said.
“And I think that is the reason most economists are finding it so hard to estimate what the full effect is.”
READ MORE: The eligibility requirements you must meet to be tested for COVID-19 in each state
How the government manages the “snap back” when restrictions are eased will also be pivotal, he said.
Careful policymaking would be essential to massage an economy left reeling from widespread job losses and a decline in exports.
“If the patient comes out of the ICU you don’t stop treating them. The treatments just change.”
Mr Coates forecast Australia’s economic response to the pandemic could create a debt upwards of $500 billion.
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