- Australia is better placed than most of the world when it comes to mounting a fast recovery, the OECD believes.
- In its latest analysis, it forecast the country could minimise the hit to the GDP to 5% and keep unemployment below 8% if it can stave off a second wave of infections.
- A fast recovery will then depend on the federal government’s response, the OECD concluded, with strong fiscal stimulus required to keep Australians confident enough to continue spending.
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The world economy might be walking a tightrope during the COVID-19 crisis, but Australia could still strike the right balance.
Noting Australia has “been relatively spared so far from the COVID-19 outbreak”, the Organisation for Economic Cooperation and Development (OECD) believes Australia is better placed than most to make a speedy recovery.
“Continued restrictions on international travel throughout 2020, together with Australia’s geography, imply that a second outbreak could be smaller than elsewhere,” the international body wrote in its latest economic analysis.
Exactly how it fares will, of course, be determined on whether or it can prevent or minimise a second wave of infections and thus stay open for business, at least domestically.
If it can avoid another spike in COVID-19 cases, the OECD forecasts Australia will ‘only’ take a 5% hit to its GDP in 2020 well below original forecasts of 8.5% – and recover 4% next year. In this scenario, unemployment peaks at 7.4% this year and clambers to 7.6% next year. For comparison, Treasury is expecting 8%.
If a second wave were to eventuate, it would wipe 6.3% off the economy this year and keep next year’s recovery to just 1%. The unemployment rate meanwhile would climb to 7.6% and then jump to 8.8% in 2021.
While it’s too soon to tell how Australia will control the coronavirus, the early signs are promising. The number of new daily cases are hovering just above zero, with every state other than New South Wales and Victoria beginning to put together consecutive days without new infections.
Treasurer Josh Frydenberg said Australia was in the third-best position among the OECD’s 36 members to stage a recovery.
“There is still a long way to go in recovering from this once in a hundred-year global pandemic but we are heading in the right direction and we will continue to do all that is necessary to ensure Australia bounces back stronger on the other side of this crisis,” he said.
That fast recovery however will depend then on how well his government “walks the tightrope” between containing the virus and supporting the economy, according to the OECD. It recommends Frydenberg use his June review to consider extending the JobKeeper wage subsidy beyond September, rather than cutting it back, as is expected.
“In particular, some income support measures may need to be extended beyond their September expiry date,” it wrote, while also flagging concerns over the six-month expiry date on loan repayment holidays.
“Expanded loan guarantees, coupled with accelerated insolvency processes, could reduce scarring for entrepreneurs and facilitate a more dynamic recovery.”
The expiry date of programs such as JobKeeper as well as rental and home repayment guarantees are certainly looming large in the minds of Australians. A Finder survey found 58% of Australians are concerned about their ability to meet their daily expenses once government assistance ends. Meanwhile, one in four fear losing their job over the coming months.
It figures then that the OECD also suggests there’s more scope to extend programs like JobSeeker, instead of relegating payments back to Newstart levels as Prime Minister Scott Morrison has indicated his government will do.
“The authorities should also ensure that the social safety net is adequate and consider further investment in energy efficiency improvements and social housing,” it said.
It echoes criticism that the $680 million HomeBuilder program could be better used in building and improving public and affordable housing than renovating the homes of the well-off.
It’s not the first time a global monetary body has butted heads with the Australian federal government in recent weeks.
A strong fiscal stimulus approach, the OECD maintains, will be crucial to keep Australians confident and spending. It noted sky-high household debt, a result of years of soaring property prices could prove a major burden as Australians choose to pay it down rather than continue consuming.
It will remain a matter of public sentiment and that at least right now appears to be recovering quickly.