How coronavirus will wallop Australia’s economy – and what the government must do

The Guardian has a number of short pieces from economists on the likely economic effects of the coronavirus, and what should be done about it. Here’s mine

The government has finally recognised the correctness of the Rudd government’s response to the GFC

The Australian economy was slowing even before the bushfire catastrophe and the arrival of coronavirus. The economic costs of the bushfires, including damage to property and infrastructure, long-term health effects of smoke exposure and ecosystem destruction were massive, but the main effects on GDP will be felt by the tourism sector. The damage to Australia’s international image from widespread vision of the fires, accompanied by critical commentary to the effect that, as a climate laggard, we have brought this on ourselves, will be long-lasting.

The arrival of the coronavirus, just as the last bushfires were extinguished will have a greater short term impact on economic activity, almost certainly resulting in two or more quarters of negative growth. With an underlying growth rate of 0.5% per quarter, a 5% contraction in the 10% of the economy most exposed to the effects of coronavirus would be sufficient to reduce growth to zero.

It appears that the government has finally recognised the correctness of the Rudd government’s response to the GFC, and will follow that path, with some marginal attempts at product differentiation. It is likely that the effect on the budget balance will be substantially greater than the $10bn currently being discussed, and that the recent decline in the ratio of public debt to GDP will be reversed. In these circumstances, the massive tax cuts for high income earners, legislated for 2024-25 will probably prove unaffordable.

74 thoughts on “How coronavirus will wallop Australia’s economy – and what the government must do

  1. . Apart from all the human suffering the virus may turn out to be a good thing as it seems to bringing out the inner socialist in everyone . Lots of talk about chipping in ,concern for others ,and doing your bit etc. There could even be some trust or faith in government developed if some of them somewhere manage to lead well enough .Maye Biden might end up being a decent president too , I imagine he is pretty well tied to Wall St though. Trump may have met his Waterloo in the virus . He is unable to just talk it away. Morrison could claw back some of his massive trust deficit if he also helps ordinary people enough alongside his apparent priority of protecting business .

  2. “The damage to Australia’s international image from widespread vision of the fires”

    The coronavirus has wiped the memory of the bushfires from the national consciousness, much less the international one.

    Indeed it would not surprise if after it’s all done with there is a line of argument that goes we shouldn’t worry about climate change because that’s in the distant future. We should worry about present things, like pandemics.

    When it happens, remember where you read it first.

  3. “ it seems to bringing out the inner socialist in everyone”

    Oh yes, all the I’m all right Jack behaviour we’ve observed, like the hoarding of bog roll, is so socialist it could have been scripted by Marx himself.

  4. Smith9 “after it’s all done with there is a line of argument” which will be endlessly repeated, of Scomo & Hunt today saying we are following the experts advice.

    I repeat vision proving hypocracy beats prior ideology & cynicism.

    Let’s hope I am correct.

  5. The disease and disruption effects of this pandemic could last for up to 18th months, covering two winters for Australia. This could mean 4 to 6 quarters of negative growth (recession) for Australia. Any hopes that this will be over quickly just might be dashed.

    On the other hand, coronavirus might help clear the decks of the aged demographic. Yes, that means me too so I can call the elephant in the room. Taking the drag of the aged off the economy and environment might help matters in the long run. The other drags that need to be taken off the economy and off the environment are excessive consumption expenditures by governments and people on elite sports, alcohol, drugs, tourism and entertainments. We can always hope that this crisis sees a permanent swing and structural change in expenditures from pointless and wasteful consumption to useful social, environmental, renweables and sustainables spending.

  6. The fall in oil prices, if it lasts, will make electric cars much less attractive compared to ICE cars.

  7. Smith9, it will make electric cars slightly less attractive. If Australian car buyers cared much about the cost of fuel they’d be driving a lot more hybrids and a lot more little sub-compact cars like you see in Japan and Italy. What they seem to mostly care about is performance and an electric car can provide more of than than any internal combustion engine car in its price range.

  8. The suit retail store my wife works for has already laid off 4 workers nationally this week because the suits are made in China and Italy. If most of our major trading partners go into lockdown as per Italy and parts of China, I fear depression rather than recession.

  9. Smith9, yes, it is likely to slow adoption in countries that aren’t rich like us and that don’t have a strong focus on getting off foreign oil, like China does.

  10. The key task is to slow down the actual health impact of the Covid-19 virus so that our health facilities are less overwhelmed. This is much more pressing than some limited fiscal or monetary actions. The virus is not a blizzard that will go away in a few weeks – it will be around for a year at least and infection levels are just starting to grow. As China goes back to work infection levels will reemerge. Ditto for Europe when they see containment apparently becoming “effective”..

    I think, John, you underestimate the potential scale of this disaster when you ask whether or not we will go into a technical recession. Its the wrong question. The larger picture one suspects involve hundreds of thousands of infections in Australia over the coming year with 10s of thousands of deaths and an overwhelmed hospital-health care system. Already, the hospital and health system seems to be under pressure because of log-jams in testing and we have only a bit more than 100 infections.

    This thing has just started. Plenty of stuff on this but the following video is good in getting the perspective right.

  11. “In these circumstances, the massive tax cuts for high income earners, legislated for 2024-25 will probably prove unaffordable”

    Or: now more than ever is not the time to raise taxes; no one ever taxed their way back to a stronger recovery; the best way to boost consumer confidence is to let people keep their own money etc et depressing cetera

  12. @Jones “Now more than ever is not the time to raise taxes”, which is why burdening the budget with cuts scheduled years in the future is such a bad idea.

  13. If there’s one glimmer of hope to all this, it’s that the necessary pivot from “running a deficit is the worst crime a government could ever commit/Labor should be on trial at the Hague for their reckless response to the gfc” to surplus-smashing stimulus will be way easier for Morrison than any other PM ever, thanks to his utter shamelessness and contempt for the media, plus the Coalition’s coterie of servile media courtiers.

    Peter Lewis’ guardian headline about Morrison needing to swallow his pride is laughably naive. We’ll just get his normal schtick of (take your pick) ‘I don’t accept the premise of your question/now you’re just parroting Labor’s smears/that’s a bubble issue and we’re focused on the things that matter to working families’. Swallowing pride is for chumps

  14. anonymous= Harry Clarke, posted with a lag. WordPress actively dislikes my new iPad.

  15. It is laughable that the WHO has only just called it as global pandemic. They could have called it a month ago at least. The trajectory was clear even then. This can be said without resort to hindsight. We have to wonder at the foot-dragging of the WHO to call a global pandemic. I am not sure why they were so reluctant. One can only speculate about the reasons behind the scenes.

    What this really shows is that connectedness and globalization come with serious costs and risks. It is very arguable that the globe (meaning humans, societies, economies) is now too connected. International trade and travel connections have become too great. The benefits are now outweighed by the risks. A wise nation of any size and with a wide range of domestic resources would now begin a selective and partial disconnection from the global economy. That is to say a return to a greater degree of national self-sufficiency and less connections of all kinds internationally would be wise.

    A dissipative system is a self-regulating thermodynamically open system which is operating out of, thermodynamic equilibrium in an environment with which it exchanges energy and matter. Any self-regulating dissipative system, like a person or a nation (as society and economy), will find that there is an optimum zone of connectedness with the surrounding and global environment (natural and artificial). Too little connection does not permit the necessary access to and exchange of matter and energy. Too much access leaves the entity open to the ingress of destructive factors.

    Australia’s connectedness with the global economy and global population has gone too far. We are now paying the price. A national economy and population policy for Australia should be run at the level where the benefits of very modest trade and travel can be realized without all the drawbacks and also where the reliance on said trade and travel is not great and can be shut down as required at relatively short notice without serious economic effects. Our problem was and is that we could not and cannot disconnect from the world economy without risking collapse. Our high dependence on China for trade, tourists and paying students is a threat to our national survival.

  16. “It is laughable that the WHO has only just called it as global pandemic. ”

    I was listening to the the Victorian Chief Health Officer being interviewed on ABC radio yesterday evening and he was euphemistically making the same point – along the lines of “The fact that the WHO haven’t called this a pandemic isn’t helpful”

  17. At least the Grand Prix is going ahead. There’s a lot of dollars involved.

    Though, some might say that having all those spectators jammed in together for hours on end, for four days, isn’t very prudent from a public health perspective.

  18. I noticed the other day that there would be a lot of “eating crow”Tied to a stimulus from Smoke-o and his gang, but at least they have recognised the need for fiscal stimulus is more important than ideology.
    They just have to understand that they have at their disposal, a “Bottomless Pit” of currency to call on. There’s nothing to stop them spending off budget for the stimulus, and the States can get a helping hand by an increase in their grants, which also do not drain any assets. The spending limit is the resource based availability.

  19. Ikon & Troy re pandemic declaration. Not agrreing nor disagreeing. Here is WHO’s justicifaction;

    “”Pandemic is not a word to use lightly or carelessly. It is a word that, if misused, can cause unreasonable fear, or unjustified acceptance that the fight is over, leading to unnecessary suffering and death”-@DrTedros

    Smith9 +1 “isn’t very prudent from a public health perspective.”

  20. A lot of the ‘dollars involved’ in the Grand Prix are the subsidies from Victorian taxpayers needed to support that noisy atrocity. How closely spectators are ‘jammed in together’ at the Grand Prix is always debatable given the longstanding fiddling of GP attendance figures, corporate indulgence and assorted freebies.

  21. Smith9,

    Clearly, in the case of the Grand Prix, dollar calculations of the short-sighted and special interests kind are being prioritized over dollar and human calculations of the long-sighted, public health and interest kind. One could always think, if petrol-heads start dying at a greater rate than other people, then this is a kind of natural selection if they are still of breeding age. [1] One would hope that the days of governments subsidizing destructive, wasteful entertainments like car racing will soon be over and that they will start better subsidizing public health instead.

    Note 1: Harsh words, I know, but we have to start calling out environmentally and socially destructive idiocy for what it is.

  22. 3 or more quarters JQ? – “almost certainly resulting in two or more quarters of negative growth”

    Looks like Corvid19 Pandemic is going to be around for a while “and is shed for a prolonged time after symptoms end, including in stool.”

    Wash hands. Don’t touch. Keep distance. My family used to import pumps from India. My mum was the only one who went to India and didn’t get delhi belly. Little finger for doors. Wash hands asap.

    “Clinical presentation and virological assessment of hospitalized cases of coronavirus disease 2019 in a travel-associated transmission cluster

    “Conclusions: The present study shows that COVID-19 can often present as a common cold-like illness. SARS-CoV-2 can actively replicate in the upper respiratory tract, and is shed for a prolonged time after symptoms end, including in stool. These findings suggest adjustments of current case definitions and re-evaluation of the prospects of outbreak containment.”

    “This article is a preprint and has not been peer-reviewed [what does this mean?]. It reports new medical research that has yet to be evaluated and so should not be used to guide clinical practice.


  23. “The fact that the WHO haven’t called this a pandemic isn’t helpful”

    I don’t think it makes a great deal of difference. Roger Daltry and Pete Townshend are fine musicians but they have no expertise in public health.

  24. On one of the commercial breakfast television programs yesterday morning there was some discussion of the possibility of marquee sporting events such as the AFL’s Anzac Day match between Collingwood and Essendon being played in empty stadiums. This prompted one intrepid soul to venture the opinion that perhaps the Anzac Day commemorations and marches themselves may need to be cancelled. This may well be a sensible precaution, especially given the average ages of the participants in these events, but it would be brave governments and public authorities that would make such a call in the face of the furore that it would evoke.

  25. “The fact that the WHO haven’t called this a pandemic isn’t helpful”

    I don’t think it makes a great deal of difference. Roger Daltry and Pete Townshend are fine musicians but they have no expertise in public health.

    Did you think up that one by yourself, or did you have help?

  26. A possibly developing pattern is that Asian nations might be handling this epidemic better than Western Nations. However, it is too early to call this. We need to see more developments before we could say this for sure. It concerns me that;

    (a) Italy has far more cases per million population than any other nation (206.1 per million) compared to the next worst with a 1,000 overall cases or more: South Korea (151.3 per million), Iran (107.2 per million).

    (b) Italy’s case rate is exploding along with that of Iran and Spain.

    (c) The USA’s testing program is hopeless and we in Australia seem to have a surprising number of return travellers from the USA with the virus. Expect the USA rate to explode very soon.

    Is it too early to hypothesize that neoliberal economic governance will correlate with the worst outbreaks in the long term? Maybe. Perhaps the worst outbreaks will correlate with tourism numbers; the nations receiving the most tourists for overseas and the most tourists returning from overseas.

    Time will tell.

  27. The people worried about the economy appear to be operating on the theory that it doesn’t need people, so if we can just focus on avoiding “negative economic growth” everything will be fine. Presumably even if consumer numbers experience a phase of negative growth at least the economy will survive.

    This is where using fiat currency, and especially bank-issued currency, is useful. We can make the economy “worth” whatever we like by issuing more of it. Viz, the governmunt don’t even have to borrow money from itself, they can just relax the lending rules and let the banks issue more money to (un)willing borrowers. Because let’s face it, for a lot of people self-quarantine means getting out the credit card to stay alive. At least if the governmunt relabels the camps as “quarantine centres” those without sick leave (etc) who are incarcerated there don’t have to pay for food (although they may lose their homes and any tainted possessions therin).

  28. The WHO declares a “Global Health Emergency” but methinks the concern as to “health” is actually the health of the global economy getting itself dislocated from itself as it did in a decade ago.

    The mechanism is breaking down at the conveyors.


    It is true that Daltry and Townsend were a marvellous partnership, but it should be remembered that Daltry beat up on Townsend after Townsend clobbered him with a guitar.

    How fragile, how close to the edge, must complex mechanisms be, how cigarette paper thin the margin between success and failure.

  29. Whether or not Pluto is classified as a planet has no effect at all on Pluto and anyone who assumes it does is a nutter.

    SULU: Captain, we’re on a collision course with Pluto!
    KIRK: There’s not time to lose! Uhura, Contact the Astronomical Society and have them reclassify Pluto as empty space!

  30. Iko -“What this really shows is that connectedness and globalization come with serious costs and risks”

    We get a two-some year global recession, perhaps depression; and…

    We get recession for a year or more in Oz, but because it’s such a simple (165th behind Uganda!) hollow economy a worse than elsewhere depression. Don’t forget that for a long while now GDP has stayed positive only because of Ponzi immigration numbers. If recession hits immigration will certainly fall. Also don’t forget the many millions of “guest” workers then unable to work as employment in that economic ripoff sector shrinks, and that they’re not going to be eligible for Recessionberg’s hand outs, sick pay and sick pay extensions, dole and dole bonus payment, pensions, and deeming sweeteners. Most will likely shortly be following the Australian economy draining huge sum of their regularly repatriated funds by flying home themselves, one hopes, and likely not flying back on the other side of this if it turns out to be a proper and long overdue shake up. Perhaps there maybe some employment and general economic silver linings for other residents here apart from the beneficiaries of disaster capitalism set soon to pounce and clean up.

  31. Ikonoclast – “(c) The USA’s testing program is hopeless and we in Australia seem to have a surprising number of return travellers from the USA with the virus. Expect the USA rate to explode very soon.”
    New study on COVID-19 estimates 5.1 days for incubation period
    Median time from exposure to symptoms affirms earlier estimates and supports CDC’s current 14-day quarantine period
    Date: March 10, 2020 Source: Johns Hopkins University Bloomberg School of Public Health
    (rushed release prior to peer review)
    COVID-19 infections in U.S. may be much higher, new estimates show
    But even moderate interventions can help reduce spread, according to study
    Date: March 9, 2020
    Source: Cedars-Sinai Medical Center
    Summary: By March 1, 2020, thousands of people in the U.S. may have already been infected by the COVID-19 coronavirus, far more than the number that had been publicly reported, according to a new study. However, the findings also suggest that even moderately effective interventions to reduce transmission can have a significant impact on the scale of the epidemic, the authors say.

    Based on all these assumptions and methods, the investigators estimated the total number of people in the U.S. infected with coronavirus as of March 1 to be between 1,043 and 9,484. The first figure assumed current preventive procedures — such as quarantines and screening international travelers at airports — had reduced as much as 25% of the transmissibility in unidentified cases. The second figure assumed no intervention procedures had been undertaken to reduce the transmissibility.

    The disparity between the lowest and highest estimates has important implications for controlling the COVID-19 epidemic, said Dermot P. McGovern, MD, PhD, professor of Medicine and Biomedical Sciences at Cedars-Sinai and senior author of the new study.

  32. Note to Dutton.

    “COVID-19 and migration: we need a firewall

    …” Nor, in any country, can we have it that people stay in the shadows because they fear that if they come to the attention of medical and other public health authorities, their precarious immigration status will be disclosed and they will be detained and deported. In other words, to fight COVID-19 we need to put in place the “firewall” between the provision of essential public services and immigration enforcement that Joseph Carens argued for in his book The Ethics of Immigration. Medics and other public authorities have to be barred from disclosing the immigration status of those they are dealing with in the context of COVID-19 to the immigration enforcment agencies. Otherwise, people will stay hidden, sick, unjustly denied help themselves and blamelessly placing others at risk.”

  33. Whether or not Pluto is classified as a planet has no effect at all on Pluto …

    It has no effect on Pluto, but it does have effects on people.

  34. Such Dutton note unnecessary. And entirely misplaced as Dutton and the gang as usual will be fighting to prevent them leaving to prevent greater erosion of GDP.

    “their precarious immigration status will be disclosed”

    Fixed: their precarious immigration loyalty, belonging, housing, financial, and employment status will be disclosed and they will be detained and deported depart.

  35. Better fix: their precarious immigration loyalty, belonging, housing, financial, and employment status will be disclosed and they will be detained and deported depart.

  36. Handy tip: if, like me, you have ran out of toilet paper and can’t find it in the shops due to the national coronavirus inspired toilet paper panic, try squirting yourself with a water pistol.

  37. Iko , I reckon your Asian nations idea might be correct .The American style ideal of freedom may end up getting in the way of coping with a pandemic.

  38. Re the toilet paper panic, I’ve heard phone book pages cut in half also work. 2 work colleagues have bought ‘bum guns’ from Chinese web sites. Also try going to the smaller supermarkets at opening time. None tested by me personally (yet).

  39. My wife was shopping at our local woollies on the weekend as she noticed the toilet paper rack being restocked – by 2 employees and a security guard to monitor the process.

  40. One problem with crises as Naomi Klein has pointed out is that they give opportunities to right wing power. People tend to fall in to simple short hand ways of thinking. In this case I think it’s the widespread adoption of simple idea that decline in GDP growth is necessarily a bad thing.

    It isn’t necessarily and it’s something we probably need to become sustainable. What we need to do is ensure that:
    – it’s decline in the right areas (eg motorised transport, processed food)
    – that there are complementary non GDP increases to balance it (eg walking, growing local fresh food)
    – that work and income are shared so that ppl are protected from impacts of job and income loss
    – that we start measuring the right things (human and ecosystem health and well-being rather than GDP)

  41. In regard to the pandemic specifically, obviously it will slow down a lot of things. One thing we need to think about is community action to prevent serious impacts from isolation. Social media is useful for this but human social contact (physically distanced but within eyesight and talking distance) is also good..

    Nice little story from my own experience: I had to be tested because 10 days after coming back to Aus via Singapore I developed a mild sore throat (I’m clear, at least for now!). After three days of isolation while I was still waiting for results and the throat had cleared up, I got one of my neighbours to buy some wine and I sat on my balcony while two neighbours sat nearby but a couple of metres away, having a chat and a glass of wine on Saturday evening. It was really nice. The only thing that broke it up was that I started to feel ‘this is too nice! It can’t be safe!’ and had to go inside. I think it was fine really, there was no physical contact, we were outside and they were well over 1.5m away.
    Anyway it’s an example that physical self isolation doesn’t have to lead to social isolation, which can be very damaging to people’s mental and emotional health.

  42. Svante says at 3:37 pm “Such Dutton note unnecessary.”. Really?

    Over 30,000 Chinese students have arrived in Australia since travel ban started

    Better Better fix: their cash, immigration loyalty, belonging, housing, financial, and employment status will be taken and they will be [de]retained and allowed to depart after satisfying contracts.

  43. “When a danger is growing exponentially, everything looks fine until it doesn’t

    “There’s an old brain teaser that goes like this: You have a pond of a certain size, and upon that pond, a single lilypad. This particular species of lily pad reproduces once a day, so that on day two, you have two lily pads. On day three, you have four, and so on.

    “Now the teaser. “If it takes the lily pads 48 days to cover the pond completely, how long will it take for the pond to be covered halfway?”

  44. Central west nsw last week.

    2 bus loads from sydney.

    Cleaned out wiolies coles and aldi. Then went to smaller town and cleaned out iga.

    To buy tp here now, you have to turn up when truck arrives at 1pm, pallets put out – don’t bother with shelves – queue, and gone within 15mins. But it seems steady supply continuing. Maybe I’ll buy anwater pistol as svante advises.

    Bidet anyone?

    If the bomb drops, I confidently presict a traffic jam 250kms long.

    And like a plague of locusts, clean up every edible thing on the way.

    Lucky I have a bolt hole to retreat to with a REAL spring. But coke a cola may have already sucked it dry as they bought rights to neighboring property!

    Oh. Forgot. Bushfires burnt all piping and tanks. Not fixed yet. At least the 1.5km walk to spring will be a nature filled stoll in the bush.

  45. Caught Professor James McCaw on abc drum last night. Best projections of virus.

    My takeaway..
    Peak 2-5mths. Even they aren’t sure yet.

    Swift targeted intervention just before peak will alter trajectory.

    Worthy modeller for JQ’s economic projections.

    “Infectious diseases pose a local and global challenge, with substantial human and economic costs.

    “Simulations and models are used to provide insights into infectious disease trends, quantify likely benefits of public health interventions, and support risk assessment for emerging infectious diseases. PRISM² will extend existing national modelling capacity and cross-sectoral partnerships to inform infectious disease preparedness, control and response in Australia and our region.”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s