Early COVID vaccine a potential $34bn ‘game changer’ for economy

Treasury in its October 6 budget forecasts outlined the massive impact of a vaccine becoming widely available from the middle of next year.

Pfizer’s announcement of a breakthrough in developing a COVID-19 vaccine has massive ramifications for the Australian economy. Picture: Pfizer

News that five million treatments of a COVID-19 vaccine could be available in Australia early next year have raised hopes of a $34bn boost to the national economy in the 2021-22 financial year, as modelled by Treasury in its October 6 budget.

Pfizer announced its drug had an efficacy rate of more than 90 per cent, and from human trials would be available within three weeks, at which time the American pharmaceutical giant said it would seek approval from regulators to begin rolling out the vaccine.

CBA head of Australian economics Gareth Aird said the availability of a vaccine was a “game-changer to the extent you have a clear pathway back to having an economy resembling what we had pre-COVID”.

Treasury’s October 6 budget forecasts assumed a “population-wide” Australian vaccination program would be “fully in place” by late 2021, and “an earlier-than-expected vaccine poses the most significant upside risk to the outlook”.

“A rollout of a vaccine from 1 July, 2021, would provide certainty for both households and businesses, helping support stronger consumption and investment,” the budget said.

A quicker opening of inter­national borders would allow foreign students to return in larger numbers from the middle of next year, Treasury said.

The upside is significant. Treasury estimated in this scenario that real GDP growth in the next financial year would accelerate from 4.75 per cent to 6.25 per cent, worth an extra $34bn to the economy.

Economists said reopening Australia to the world would be the key benefit to jobs and economic activity, alongside the more intangible boost to spending and investment as fears of a third wave disappeared, unleashing the nation’s “animal spirits”.

PwC chief economist Jeremy Thorpe said that the question of when to open the borders would be the major policy issue of 2021.

“Having the confidence to open the borders will be the challenge,” he said. “The question of what level of immunity in the community will be acceptable will be the big policy debate ­domestically.”

While tourism operators devastated by the loss of inter­national visitors will be beneficiaries of a vaccine and open borders, the overall effect on the economy was less clear, KPMG chief economist Brendan Rynne said.

“Australian tourism exports are less than our tourism imports,” Dr Rynne said. “In some regards, if we could capture every tourism dollar Australians would otherwise spend on overseas holidays, our economy would be larger.”

The economic impact of a vaccine breakthrough depends on the degree to which social distancing measures are removed as a result of a vaccine becoming available. Treasury said “the boost in consumption and a more rapid easing in restrictions would benefit industries most affected by the health measures, such as accommodation, food services and arts and recreation”.

With scant evidence of community transmission of the virus, Australia may have already eased the bulk of internal restrictions by the time a vaccine becomes available, Mr Aird said. In which case “the economic impact isn’t significant until you reopen international borders”.