Glyn Wittwer answers your questions about the economy
Just what it will take for the economy to recover and how many jobs will be lost in the meantime isn’t just giving Treasurer Josh Frydenberg sleepless nights. Glyn Wittwer reveals the scenarios ahead.
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The only numbers being watched as closely as COVID-19 infection rates, are the ones showing the impact of the health crisis on our economy.
Ordinary Australians can only watch and wait to see how bad unemployment will get, how effective the Government’s rescue efforts will be and what will happen if we don’t get a vaccine, especially of there is a second wave of the virus
Glyn Wittwer, Professorial Fellow at the Centre of Policy Studies, Victoria University, was online today to answer your questions.
Here’s what he had to say:
Q. Do you agree that many people still haven’t grasped how bad this recession is going to be? From early on the Government framed its action in terms of six months and I think that’s given a false sense of security about how this turns around.
A. I think the decision makers agree with you. Our Treasurer Mr Frydenberg has admitted that he has had sleepless nights. However, leadership is about making good decisions while maintaining hope. The last sector to recover will be international travel. Given that international tourism and education exports together account for several per cent of national employment, we might expect unemployment to persist for several per cent over pre-COVID-19 levels even after the rest of the economy resumes usual activity. If vaccines become widely used in the second half of 2021, as Bill Gates believes is possible, then unemployment levels may move closer to pre-pandemic levels. Without vaccines, our best chance is that COVID-19 tests become more widespread and a routine and compulsory procedure for all international travellers.
Q. How bad is unemployment going to get and is there more the Government should be doing?
A. I’ve done a quick calculation of employment in industries most directly affected by the closedown. The affected sectors account for 20 per cent of national employment. However, not all close down completely. For example, restaurants, which employ more than 6 per cent of the national workforce, have switched exclusively to takeaways. But they are probably operating with only one third or so of their usual staff. The percentage of the economy directly affected is the reason a massive fiscal response, as undertaken by the Commonwealth and state governments, is necessary. If businesses and individuals receive temporary government support during the pandemic, it improves the chance of getting back to business as usual as the lockdown is scaled back. It also means that some of the vulnerable 20 per cent of the workforce will retain jobs during the crisis. Then there’s the mental health issue. This one-in-a-century pandemic means that many people who have never been unemployed before face job losses now. We need to preserve the skills base and the well being of people so that we are in better shape to resume normality when the pandemic subsides.
Q. We flattened the curve, but there is no vaccine in sight and no idea what the real infected numbers are. What’s next?
A. Australia’s ratio of positive results to total tests gives me comfort. In the absence of a vaccine, more widespread testing becomes an important tool as we climb out of lockdown. There are trade-offs. For example, the medical profession judges that the additional benefits of resuming elective procedures outweighs the additional potential costs due to COVID-19.
Q. What do you see happening to our economy if there is a second wave of coronavirus? Other countries have already seen second waves, do you think it is possible here?
A. One reason we are not rushing out of lockdown, excepting the resumption of “elective” medical procedures, is so that we don’t undo all the good work of keeping the one-in-a-century pandemic confined. Japan’s and Singapore’s second waves may have implications for us. The virologists tell us that without care, a second wave is highly probable. However, in the absence of a vaccine which could be years ago, more widespread testing may be an optimal management tool as we move out of lockdown.
Q. How low will the AUD go against the USD in coming months?
A. Predicting exchange rate movements is a precarious exercise, as short-term fluctuations are often at odds with economic foundations. I suspect that the low point was several weeks ago, before tens of thousands of US citizens lost their lives to the virus. I think the AUD will settle in the 60c-70c range, but it is very easy to be wrong on such pontifications.
Q. How much more money will the government have to throw at this crisis to get through to some sort of recovery. Are there any sectors that you think won’t make it?
A. The commitments of the Commonwealth plus state governments is in the hundreds of billions. In many sectors, there will be businesses who struggle to resume post-COVID. Government packages will help many through the crisis. A current issue is that of the second major airline. We consumers rather hope that they will remain in business.
Q. I’m grateful for the action the Government has taken with JobSeeker and JobKeeper but with three teenagers, I am worried about the level of government debt and how it will affect their futures. Are we just passing the pain on to the next generation?
A. Anybody with offspring below the age of 40 shares your anxiety, a universal toll of parenting. I think the Government’s measures are really important in keeping the lives of vulnerable people together. While we worry about the legacy of public debt that the fiscal response will hand to future generations, there may also be good legacies, such as improved responses to viruses.
Q. What needs to be done in terms of lifting lockdown restrictions to have a meaningful impact on the economy?
A. In coming months, if medical judgment is that it is safe to resume an array of human services, then we have a good chance of getting back near normal. International tourism is an exception. Restaurants might open with social distancing requirements, implying that on the busiest nights, they can only operate at half their usual capacity.
Q. Is it time to rethink employment practices in this country? I’m thinking of all the young casuals who have been stood down and don’t qualify for help.
A. A very reasonable comment. Casual employment provides flexibility, which can be good for both employers and employees in some circumstances. With any policy response, there are people who fall between the cracks. You’ve identified one group.
Q. Often from crisis comes opportunity. Do you see opportunities for both government, business and families/individuals either now or when we start to come out of this pandemic?
A. The first opportunity that I think of concerns advances in combating viruses. Some people are concerned about the legacy of the fiscal response on future generations. Advancing treatment of viruses could be a wonderful legacy. More generally, it would be nice to see a more collaborative approach to dealing with society’s problems arise from the present crisis.
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