Posted: 07 Jul. 2020 5 min. read

Fast crisis, slow recovery

Weekly economic briefing

Australia has made remarkable progress in its fight against COVID-19. Against that backdrop, Deloitte Access Economics’ latest release of Business Outlook paints an optimistic picture for our continued recovery.

In short? Our policies have successfully protected many jobs and businesses that would otherwise have been lost, while many of our key trading partners have also fought the virus better than most.  

Chart: GDP forecast, level difference from pre-COVID-19 crisis forecast

 

But even with those positives, many families are struggling with the terrible trio of high debt, high unemployment, and low confidence. And that’ll see a significant contraction in the Australian economy through 2020.

The household struggle stems from the challenging environment facing businesses across a large number of sectors.

The sectoral damage of this recession continues to change fast. It began – and remains – with international border shutdowns that have taken migrants, tourists and foreign students out of the economy. That has ongoing impacts across a range of sectors, including not just the airports and airlines themselves, but also in recreation (the missing tourists), in education (the missing students), and in construction (the missing migrants).

The pain then spread amid a shift to a much wider range of lockdowns. These spelled deep trouble for cafes and restaurants, pubs and clubs, and hotels and motels, as well as for gyms, sporting venues, entertainment centres, conference centres, movie theatres and playhouses. 

Yet those weren’t the only businesses suffering. Lockdown impacts went deeper.  For a while many miners couldn’t fly into some sites, because state borders closed too. Farmers were left scrambling for workers because backpackers and seasonal workers from our Pacific neighbours weren’t here. Real estate struggled amid bans on in-person viewings and auctions. Elective surgery was put on hold. And empty shopping centres saw many retailers shut down – some hibernating, but some closing doors forever.

The bulk of that pain occurred because it had to. In many cases sellers couldn’t sell and buyers couldn’t easily buy. But other pain soon became evident too, as purses and wallets snapped shut amid hits to income, to wealth, and to confidence. That especially showed up in sectors linked to discretionary spending. 

The good news is that many of the hardest hit businesses (including accommodation and food services, and arts and recreation) are showing early signs of recovery. But international borders remain closed, and the usual sectoral victims in a recession will be weakening further.  That will be true of:

  • Growth-dependent sectors such as construction and parts of manufacturing,
  • Pipeline-dependent sectors such as construction and professional services, and
  • Discretionary sectors such as entertainment and parts of retail.

Finally, and at the other end of the scale, some sectors are largely recession-proof, including the public sector, large parts of education, health and the utilities, as well as food and grocery retailing and wholesaling.

These will do the heavy lifting for Australia over the next few months – bolstering employment outcomes while providing for our daily needs including food, power, shelter, education and good health. 

More about the authors

David Rumbens

David Rumbens

Partner, Deloitte Access Economics

David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis.  David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.

Kristian Kolding

Kristian Kolding

Partner, Deloitte Access Economics

Kristian leads the Macroeconomic Forecasting and Policy team in Sydney and Deloitte Horizon nationally. He specialises in the application of macroeconomic analysis and forecasts to inform policy decisions, corporate strategy, transaction due diligence and stress testing. Kristian was responsible for Deloitte Access Economics' macroeconomic forecast model for a number of years providing him with an integral knowledge of macroeconomic relationships, the practical nature of forecasting and the effect of policy changes on the economy. Kristian has also co-authored a number of editions of Deloitte’s primary thought leadership publication ‘Building the Lucky Country’. He has since presented and facilitated discussions about future economic developments for numerous audiences including Australia’s premier Directors, CEOs, CFOs and senior public servants.