Posted: 24 Mar. 2020 5 min. read

The week that changed everything

Weekly economic briefing

The world is clearly in new territory in responding to the global pandemic of COVID-19. Dr Ira Kalish, Deloitte’s Chief Global Economist notes:

The number of COVID-19 cases has soared outside of China and will likely do so again in the coming weeks.  The result has been a different global economy.  Economic activity is declining rapidly.  Consumers are staying at home and businesses are shutting their doors.  Unemployment is rising sharply, key industries face massive disruption and likely bankruptcies, and central banks have cut interest rates and injected liquidity on a scale rarely seen before.  Asset and commodity prices have fallen sharply. Risk spreads have increased, threatening to cause credit markets to seize up. 

In Australia, our normal way of life is changing rapidly with the forced closure of all places of social gathering, and it is likely that even more restrictive measures are still to come.

The short term economic impact will be profound. We will get confirmation in the coming weeks of the scale of distress, but the overwhelming demand we saw for Centrelink services on Monday tells the story of where this is heading.

The Australian government’s phase two fiscal response ramped it up to offset more of the increased stress on businesses and jobs that we have seen so far. The $66 billion package supports small and medium businesses to keep afloat through the crisis via cash payments of up to $100,000 (building on what was already announced in phase one). And in the hope of tiding over struggling businesses until conditions improve, the Commonwealth is offering to partially guarantee unsecured loans of up to $250,000.

Accompanying this is a broadening and deepening of the welfare system, as it becomes clear that no amount of government spending will be able to offset the immediate shock and extensive job losses.

Of note, all arms of policy are moving in the same direction here. The support package passed through the parliament unanimously on Monday night with bipartisan support, while state and territory governments are providing additional support. Added to this, the RBA has announced a raft of policies to complement, including cutting the cash rate to 0.25% and announcing its first ever quantitative easing program to push down the broader cost of finance.  A lower Australian dollar and lower petrol prices also help.

But, as unprecedented as the size and speed of the response to date from the authorities has been, it isn’t enough:  numbers of people with the virus mounting by a factor of four times every week, and business and job stress further building by the day. So, this is still far from the end of the story in terms of federal government support. Measures to date have focused on smaller business, but jobs at our well-run, larger businesses are also at risk. These jobs are equally important, not least because larger organisations, if they remain somewhat intact, will be better placed to turbo-charge the economic recovery once the virus passes.

It’s a been a similar story overseas over the past week, with governments taking varied approaches to the support packages being implemented:

  • The UK government announced £12 billion of extra spending, followed by another £20 billion last Wednesday. On Friday, the Chancellor unveiled a massive wage subsidy scheme (aimed at guaranteeing the jobs of all employees at 80% pay, up to around average earnings), along with a deferral of VAT payments and income tax for the self-employed.
  • Canada announced C$27 billion in direct support for individuals and companies and C$55 billion in temporary tax deferrals for both households and businesses.
  • New Zealand announced NZ$12billion in additional spending on wage subsidies, bolstering the health care sector’s response to the virus, more money for low-income families and those on social welfare, and changes to business tax.
  • Hong Kong and Singapore have given a lump sum payment to every taxpayer and household, with their governments focussing more on being timely rather than targeted.

There is no shortage of options here for Canberra to choose from when it comes to designing its phase three support package. But acting fast is important.  Neither Australia nor the world has ever before dealt with a problem that gets four times worse every week, so speed of action is vital – especially in health preparedness, with a decision taken today four times as effective as the exact same decision taken in a week’s time.

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.

Harry Murphy Cruise

Harry Murphy Cruise

Senior Economist

Harry joined Deloitte Access Economics in January 2017 after completing a Bachelors of Arts and Commerce, with honours in Econometrics and Business Statistics from Monash University. Harry’s area of focus is data analytics and econometric modelling, having conducted a range of research surrounding mental health, prescription drug use, labour markets and ageing populations.