The Cost to the Australian Economy of Covid 19
The Covid-19 pandemic is still growing and has caused a lot of damage to both public health and global economy. Although a few vaccines are under trial but it will still take a lot of time for the vaccines to be given a final go-ahead and then there will be the nightmare of dealing with the logistics. This simply means that the world is far from a safe zone. In fact, the second wave that is beginning in many countries has once again given rise to fear and paranoia that may do more damage than the virus itself.
Impact on the Global Economy
The global economy is expected to suffer losses of up to $18 trillion over the next five year period according to early estimates if the virus is contained with an early vaccine, a scenario that is highly unlikely and if the pandemic cannot be controlled in the next 12 months or if the development of an effective vaccine takes longer than expected then the cost to the global economy can very well be above at least $35 trillion.
WHO recently stated that almost 10000 children had died globally since the pandemic began due to starvation caused by lockdowns and poverty. This is just one aspect of the damage that we are talking about.
Impact on the Australian Economy
According to different sources, the recession caused by the virus is going to cost Australian economy approximately $170 billion, and the after-effects of the recession will continue to be felt by the economy and the society for years.
The first wave increased unemployment by over 11% according to early estimates, and this has caused a serious burden on the government to provide a social safety net for the people. In addition to this, the closure of businesses in the manufacturing and services sector has also greatly damaged the Australian economy.
The demographic that is most vulnerable to the economic stress caused by the virus has been the low skilled working women, who have all of a sudden found themselves at the mercy of the government for providing financial aid during this time of stress.
According to data compiled by economists, there is a fear that if the second wave hits as strongly as the first one then the accumulated cost of damage to the Australian economy may rise to approximately $450 billion over the next five year period. This is equivalent to almost 32% of the annual GDP of Australia. Divided over five years, this roughly translates to a 6-7% loss of GDP per year. According to early data, the Australian economy shrunk by almost 0.3% in Q1 of 2020 and it is likely that Q2 also saw a similar impact, which means that if there has been sustained shrinking over the first two quarters of 2020, then this would be the first recession of the Australian economy in over three decades.
Figure 1 shown above shows the GDP of Australia over the last 25 year period, it can be seen that the GDP of Australia has been quite stable for the last few years, we can expect the next few bars in this graph to be consecutively lower because of the coronavirus impact and the ongoing geopolitical developments.
Also See : The Australian Economy – How Does It Work?
Economic Impact of the Pandemic
In order to understand the economic impact of the pandemic, let us look at how the economy is structured. Every economy has got a primary, secondary and tertiary sector. It has been seen that globally the impact on the primary sector has been very low, as this is not a very labour-intensive sector furthermore since the primary sector deals with natural resources, agriculture and farming and these activities usually do not require close contact unless you look at mining. Therefore the primary sector has been the least affected of all sectors.
The secondary or the manufacturing sector is the one that has been affected the most by the pandemic. February saw manufacturing activity in China declined to an unprecedented level as the country came to a halt, and because of China, global supply chains also came to a halt. As the virus spread to other countries, a similar situation was seen as one after another, the manufacturing centres of the world shut down, resulting in a spike in unemployment and industrial losses.
Small industries have suffered the worst as their capacity to withstand such losses is already lower compared to heavy manufacturing industries. The problem, however, is that small industry go on to become large manufacturing units as they attain economies of scale, so with small industries either shutting down or scaling their operations down, the hope for any recover and growth in future seems to diminish.
Services Sector has Been Very Badly Hit.
The tertiary or the services sector is perhaps the most important sector in the developing, and the developed world and the impact on this sector have been similar to that of the secondary sector. A lot of businesses in the services sector have been very badly hit. For instance, education, hospitality, travel and tourism have been some of the hardest-hit areas. The Australian government has recently called upon the Australians to visit different areas in Australia to help the local tourism industry as foreign tourists are not expected to be there at least for this year.
However, among the tertiary sector, there have been some areas that have also seen positive growth, these sectors include telecommunications, biotechnology, pharmaceuticals and fintech. These sectors have shown good growth because the pandemic is causing a transformation in the way the society functions. It is, however, still too early to say if this is the new normal or if there is still any hope of going back to the previous way of life.
Impact on the Economy
The impact on the economy, however, has been quite bad however Australia has not been hit as badly as many of the other countries, the reason for this is that Australia had quite a stable economy compared to many other economies. This stability, however, will not last long because the pandemic is slowly eating away the strengths of every economy. This, therefore, is a test of policymakers to use their foresight in order to make policies that are both timely and effective.
Main Image Source : Pixabay