Where does the Economy Stand?
Before we can plan for COVID-19 economic recovery we need to know where the economy stands at present. Last week’s national economic figures saw a 7% slide in gross domestic product (GSP), a massive hit to the Australian economy. This is the biggest slide in GDP that Australia has ever recorded and does not take into account the 2nd lockdown stage of Victoria. Australian people are tough, and they have done their best to remain positive to keep moving forward in these historically tough times. We are a resource rich nation, the lucky country! Australia needs to focus on the future. We can come out of this mess bigger and better than prior to COVID-19. We have an opportunity to become a world powerhouse as we are positioned better than any other nation for recovery. We have the smartest and most resilient people to overcome this pandemic that has caused the biggest financial devastation we have seen in our lifetime.
Household consumption has dropped considerably but household savings have increased substantially. Lifestyles have changed. Australians are not traveling or socialising like previously. Families are staying home. Businesses are not borrowing, and people are not spending. This has a flow on affect to revenue and overall sales of most businesses.
According to Jo Masters, Chief Economist of Ernest & Young Oceania, there has been a 7% loss in the overall economy. This loss has affected household consumption, non-mining investments and residential construction. Totalled together the private domestic sector shrunk by 11%. We have also seen a significant hit to our labour market. Many people have had hours reduced or made redundant.
3 Stages of COVID-19 Economic Recovery
With these scary downward trend figures, what is going to be our next step for COVID-19 economic recovery? A lot has been published in the finance news lately about the importance of COVID-19 economic recovery. What will the economic recovery look like and what role will the government play? We believe there will be 3 necessary stages for COVID-19 economic recovery. The government will need to play a vital role in providing support to turn around the economy over many years to come throughout all three stages.
Stage 1: COVID-19 economic recovery – Immediate Financial Assistance
The Government will need to play a vital role in providing support . The government has initially acted quickly to the economic downturn. Although not faultless, the Australian government to date, has done a great job with providing fast immediate financial assistance. This has come in the forms of Job Keeper and allowing access to superannuation, which has been effective with stemming the bleed. This has also been a lifeline for many small Australian businesses. It has given the opportunity to keep people employed.
Stage 2: COVID-19 economic recovery – Government Investment
Stage 2 of the COVID-19 economic recovery will need the government to support the recovery cycle. This government support comes in the form of infrastructure projects and tax incentives to encourage investment. Some government projects have been revealed and more are yet to be announced.
Stage 3: COVID-19 economic recovery – Fiscal Reform
The third stage is fiscal reform for COVID-19 economic recovery. It is about making business easier to do. Many Australians would argue that the costs of the nation’s tax system is higher than it needs to be. The existing tax system was designed in a different time to what we now see our economy. There are now opportunities for government to make our complex tax system more simplistic and fair.
Looking to the Future
Now is the time for banks to open the doors and give hard working Australians a chance to achieve their business goals. The banks have done a lot in terms of “loan holidays” with pausing existing debts through these tough times. In terms of access to credit though, the banks can be faulted for being too prudent. The banks need to loosen their lending criteria for certain loans that are going to have a direct affect in stimulating our economy. This will give Australian business the ability to generate much needed revenue and sales for COVID-19 economic recovery.
Australia is well and truly entering the stage 2 of COVID-19 economic recovery. As the nation enters this stage small business will need more support. Small business is the backbone of the nation’s economy. We need to get COVID-19 recovery right! Our recovery actions will be essential for our economic growth and the prosperity of our next generation.