We will get through this: times are tough but there’s light at the end of the tunnel

Peter King is the acting CEO of Westpac. Picture: AAP

Australia is going through an extraordinary and challenging time.

For most people, this will be a once-in-a-lifetime event. The immediate impact sees dramatic changes to our daily lives. People are also anxious about their own and their family’s wellbeing as well as their jobs, investments and businesses.

Worst of all, people are dying and are unwell, making this an unusual shock to the global economy because unlike past disruptions caused by financial crises, this is a public health crisis.

This crisis is expected to have a large impact on our economy as it’s both a supply and demand shock. The closing of borders and restrictions on movement has hit global economic activity along with consumer and business demand. This will see unemployment rise, impacting people’s incomes and putting businesses under stress.

The large-scale responses by governments, regulators and corporate Australia are exactly what we need.

Clearly, we are in uncharted territory.

However, we will get through this. And there are reasons not to lose hope.

First, nations such as China, the initial epicentre of the virus, have had success in containment and are restarting their economies. Also, despite the horrific loss of thousands of lives, the mortality rate in many countries including Australia remains in the low single percentages, and reducing this loss of life and supporting those infected is the priority. Finally, Australia’s banking system has never been stronger and better placed to support the economy.

We all have a role to play.

That includes governments via their welcome stimulus packages. In addition, the RBA positively stepped up with a range of measures this week to provide liquidity to markets, and reduce the cost of borrowing by flattening the yield curve through purchases of government bonds — and cutting the cash rate to a record low. The RBA’s new term funding facility providing low-cost funding for banks will also boost the flow of credit, further assisted by the APRA’s temporary relief on capital requirements.

While so-called QE and near-zero cash rates are extraordinary for Australia, these have been used extensively overseas since the GFC with some success and will help support the functioning of markets. The response always had to be big and well-targeted, and initiatives to date should be commended.

But banks also have a critical role to play, a fact we don’t take lightly at Westpac.

At their core, banks provide critical functions that support economic growth, allowing people to save and invest, lending to households and businesses (which in turn creates jobs) and facilitating the flow of money via payments systems.

That purpose shaped our response to COVID-19.

Based on government advice, we moved to support our 30,000-plus employees, who can in turn assist our customers whose incomes have been impacted. We’re also ensuring our critical infrastructure such as branches, ATMs and internet banking continue to operate and facilitating the ongoing functioning of the nation’s financial markets.

Yet as the industry’s response shows, we realise there is more we can do to help the economy.

Building on prior initiatives, we announced a tailored support package to help consumer and business customers affected by COVID-19. There are several elements, but a key plank is to provide six-month repayment holidays for small businesses on term loans and deferral options for mortgage holders. While no one can magically boost demand in the economy, we can help to smooth out the hit to incomes and support jobs so people can continue to spend what they can and to ensure that when activity returns, businesses and consumers are as well-placed as possible to take part in that bounce back.

And that rebound could be solid — our economists are forecasting GDP to contract in the first half of 2020 as consumer spending declines and industries such as tourism and education are impacted, before returning to growth in the second half.

While that growth profile indicates Australia is likely to face its first technical recession since the early 1990s and it will be painful for many, it’s important to note that Australia’s banking system has never been stronger.

If there’s one thing I know, the nation will get through this.

As the RBA governor stated this week, Australia’s amazing fundamentals remain — abundant natural resources, strong institutions, a great education system, rule of law, relatively high population growth, and bright and adaptable people. The list goes on and other opportunities will arise. For one, perhaps more supply chains and manufacturing return to Australia after the virus highlighted the concentration and reliance companies have on China.

Peter King is the acting CEO of Westpac