Virus crisis tests economy, leadership and our society

Scott Morrison has turned up the dial on the emergency response to the coronavirus outbreak. The nation is now preparing for a global pandemic, seeking to stay ahead of the escalating health crisis through an “abundance of caution”, the Prime Minister said on Thursday. One leading local virologist declared everyone will eventually contract the COVID-19 virus. In any case, it’s likely our health system, economy, political leadership and social stability will be tested in coming weeks and months. Mr Morrison, slow out of the blocks in the handling of the Black Summer bushfires, has been front and centre of coronavirus management and messaging. He explained there will be challenging medical and economic times ahead, with Treasury working on targeted stimulus plans, most likely for the tourism and education sectors in the first instance.

As the medical news becomes worse, managing community fears and clear communication will become even more critical. We’ve seen lousy sentiment in financial markets wipe $210bn from the local sharemarket in the past six trading days and the dollar hitting 11-year lows. Economists warn fears can feed off themselves, accelerating the financial hit from a health crisis. Even at the best of times, confidence can be evanescent. Right now, neither consumers nor investors have much of it. To this end, the entire political class will play a key role in shoring up what little there is. So far, albeit with some Canberra insiders’ argy-bargy on Thursday, national leaders have stepped up, speaking with one voice and candidly to people.

On Friday morning, Mr Morrison did five broadcast interviews, seeking to maintain public calm. People should go about their normal lives — school, watching footy, dining out at a Chinese restaurant; governments have a plan to cope, come what may. “Australia is in the best-placed position to be prepared for this than anywhere else, and so we just want to make sure it stays that way,” he said. Chief medical officers said that “we are prepared”, following the pandemic influenza game plan that has been refined over a decade. The medical brains trust is adapting the plan — an extension of what we do every flu season — as more data about COVID-19 comes to hand. For 80 per cent of people, it’s a mild illness, but the current focus remains on decreasing the number of cases coming to Australia and spreading through the community. The travel ban for China, in place since February 1, continues and is monitored weekly.

Mr Morrison stresses this is a health crisis, not a financial one, but with “very significant economic implications”. Previous health crises are a poor guide to the expected fallout, especially at this early stage. In any case, economists are running their models to pre-empt the damage bill. Deloitte Access Economics reckons gross national income could be cut by as much as $6bn this year, with the pain borne by education, tourism and mining. Yet we are talking about a $2 trillion economy.

The Morrison government began shifting expectations on its promised budget surplus this week. The Prime Minister’s language has also changed in a matter of days in relation to stimulus. He says Treasury’s advice is any fiscal measures would only be effective if they were “targeted, modest and scalable”. Mr Morrison is talking about “second-round effects” from the hit to tourism and education. Plus the disruption to supply chains is now biting hard into manufacturing, retail, agriculture and construction. There is a possibility a surplus could turn up on budget night, brought about by conservative revenue estimates from mining profits, low interest rates and a weak dollar. But that’s almost beside the point (although not for the Treasurer’s ego). We are in fiscal balance. A good starting point for deft, emergency cash drops, if required.

Recession — there, we said it — is not on the radar. But it could be. The December quarter national accounts on Wednesday will provide plenty for the “glass half-empty” among us. The economy’s fundamentals are sound. But there are definite weak spots and potholes. Investment and consumer spending are in trouble. For now, we are in a medical waiting room, with the highest priority protecting human health, hoping the virus does not move to the next level. The world is more connected, with free flows of goods, capital, ideas, people. Maladies, like viruses or market herd mentality, mean no nation is an island. Hope — what Emily Dickinson called “the thing with feathers” — may take flight if the contagion hits our shores with vengeance. If that happens, we’ll need to draw deeply on all our resources — medical, financial, leadership — and the social bonds we hold dear.