- Some Australian businesses are expected to still fall victim to the recession and “never open again”, according to Prime Minister Scott Morrison.
- The Ruthvin Institute suggests one in 6 businesses will close as a result of the recession.
- It’ll take two years to return the economy to pre-COVID-19 levels, and five years of 4% growth to catch up to where the country was headed prior, according to Morrison.
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While the government has presented a rosy vision of the future, it cannot ignore the cold hard fact of an Australian recession.
Outlining the ‘State of the Nation’, Prime Minister Scott Morrison conceded not everyone will emerge from the recession unscathed, despite government programs costing upwards of $100 billion.
“Without these measures, businesses would have simply fallen over, fallen victim, never to open again. This still may ultimately be the experience for some,” he told the Committee for Economic Development of Australia (CEDA) on Monday.
It’s certainly the expectation of forecasters. The Ruthven Institute, established by the founder of research called IBISWorld Phil Ruthven, predicts as many as one in six will close during the recession.
“Australia faces an immense challenge as we look to recover from our first recession in three decades. Those words are hard to say. For many of us, I think for most Australians, it is still to sink in,” Morrison said.
However, despite maintaining that lifelines like the JobKeeper wage subsidy, JobSeeker and loan repayment holidays had provided a much-needed bridge to “many more”, the PM remains steadfast in his stance that they will be phased out sooner rather than later.
“Left in place for too long, not only will that damage the capacity of the Budget to deal with important essential services, but it will also dull the dynamism of the economy and prevent the adjustments that must necessarily take place to enable new jobs to be created and our economy to move forward,” Morrison said.
His address conceded that the “devastating” damage to the wider economy is undeniable with 30 months of job growth wiped out in April alone, with “still worse news ahead”. A five-year recovery is now deemed “critical”.
“It is expected that over $100 billion of economic activity has been lost this year, and that it will take us an estimated two years at least, just to get back to the level we were at pre COVID-19,” Morrison said.
“That’s why we have a plan to lift growth, not just for the next few months, just not for now, but the next five years. We need to lift our economic growth rate by more than 1 percentage point above trend to beat the expected pre-COVID-19 GDP by 2025, to catch back up to where we were before COVID hit.”
With trend growth at 2.75%, it sets the government the immense task of lifting this to almost 4%. The OECD has forecast the economy will contract by 5% this year and rebound by 4.1% next year.
To achieve this mean feat, the Morrison government this week laid out its newest stimulus program, dubbed JobMaker, to fast-track 15 national infrastructure projects. They include Inland Rail from Melbourne to Brisbane and the underwater Marinus Link providing electricity to Tasmania from Victoria.
It won’t be enough to prevent some businesses from failing, however.
“The shutdown stopped around 15% of the nation’s GDP from generating output. In these and other badly-impacted industries, government support provides some help; but not for the two to three years it will take to recover to 2019 conditions,” Ruthven said.
If the government has any hope of turning the clock back quickly, it won’t be the last stimulus package that the country sees.