COVID-19 has affected economies more quickly than any event in recent memory, surpassing even the crisis of 2008. It’s devastating impact on the global economy has not spared Australia. This is a challenging time for everyone, including economists.

Supply shocks:

Australian economy encounters tremors regarding supply-side dimension to their current situation, particularly regarding labour supply, which is restricted by government social distancing regulations, and the supply of goods, raw materials, and essential items, like medicines and masks. Monetary and fiscal policy measures usually address demand, but it’s difficult for traditional policy instruments to respond to the supply shock that economies are now experiencing around the world.

Money flow distresses:

Everyone’s expense is someone else’s income, and everyone’s income is someone else’s expense. When governments minimize the expenses that employers and businesses pay to remain in business, they’re automatically cutting someone else’s income. However, due to controlled So, it’s a complex set of arrangements.

Unemployment:

The current numbers portend a decline in employment, which is approximately 800,000 Australians currently employed becoming unemployed or dropping out of the workforce.

If everyone who loses a job because of the shutdown says they’re unemployed and looking for work, then the unemployment rate could still get to 11%, notwithstanding the impact of the government’s wage subsidy package

Policy:

Australia has budgeted almost $200 billion against the coronavirus crisis; considering the most recent announcements of free childcare and additional health system support, that’s equivalent to about 10% of GDP. That puts Australia’s policy response in an area similar to what most other large Western economies are doing. It may have to extend some of the announced missions if the shutdown continues past September, but if you look at other countries, it’s not obvious now that there are things, they’re doing that the Australian government should also do.

Agony of service sector:

The services-producing sectors have been much harder hit than manufacturing sectors. That reflects the fact that most services require physical encounters between producer and consumer that don’t usually occur when we’re talking about transactions and goods.

This underscores another important dimension: The services sector is much more labour-intensive, so the employment consequences are bound to be more severe than if the crisis affected mostly goods-producing markets.

Low output:

In many cases, the loss of services output is permanent, whereas regarding discretionary goods, consumer goods, and the like, some of the unmet demand that happens during the shutdown can be recouped when restrictions are lifted (when there is pent-up demand). Our rough estimate is that the lockdowns since late May are costing the economy around $28 billion in lost output. That’s why the economy is expected to go backwards by about 4% this quarter.
There are also psychological costs of lockdowns too.

Increased cost:

The increase in energy prices will benefit Australian gas exporters but will simultaneously increase input costs for producers. This might trickle down the supply chain, raising prices of goods, especially in combination with already elevated freight costs against the backdrop of supply chain issues. prices continue to climb as a result of logistical challenges and complex geopolitical dialogues

Economic downturn:

After Covid-19 knocked down the Australian economy for the second straight year during winter, it is again scrambling to get back on its feet. Most recent GDP figures do not include the economic slowdown yet, but due to the fierce lockdowns through July, August and September, we have pencilled in an economic contraction in quarter-on-quarter terms. Continued lockdowns will remain a drag on the economy as ongoing restrictions to travel within Australia will hamper economic activity. At the same time, private consumption will take a hit as people are unable to spend their money, particularly on services.

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