The enormous scale of the financial destruction being caused to the Australian economy by the national lockdown has been laid bare by Treasurer Josh Frydenberg in an address to the National Press Club in Canberra on Tuesday, 5 May.
In simple terms, the economy is losing around $4-billion for every day that the country is in lockdown. For the June quarter, GDP will reduce by 10%, which is the equivalent of $50-billion wiped from the value of Australia.
The figure is an estimate from Treasury based on the reduction in economic activity from a combination of reduced workforce participation, productivity and consumption.
Jobless rate will likely be the highest in 26 years
Unemployment in Australia, according to Treasury predictions, will double to 10% in the June quarter, which is its highest in 26 years. This equates to an estimated 700 000 people being out of work due to the pandemic and its impact.
“In the early 1990s, unemployment increased by 5% over three years, but took seven years to get back to its pre-crisis level,” Frydenberg said. “It underlines the importance of getting people back to work as soon as possible to avoid the long-term economic and social impacts from a high unemployment rate.”
He continued: “As has been remarked, unemployment went up in the elevator and went down by the stairs. In the current coronavirus, it is expected the unemployment rate will go up by around 5% in three months, let alone three years.”
This dwarfs the Global Financial Crisis of 2008
The Treasurer said the coming economic crisis will be far in excess of what the world experienced in 2008.
“Notwithstanding Australia’s success to date on the health front and the unprecedented scale and scope of our economic response, our economic indicators are going to get considerably worse in the period ahead before they get better,” he told the Press Club. “Some of the hardest hit sectors like retail and hospitality are among the biggest employers, accounting for more than 2-million employees between them.
Recent credit card data from the banks had shown that spending on arts and recreational services, accommodation and food services were down around 60% and 70% respectively in late April compared to the previous year.
“Despite the toilet paper boom and the record increase in retail trade in March due to panic buying, overall consumption, according to NAB data, has fallen 19.5% since the start of the year, with declines across all jurisdictions.”
Frydenberg noted that Victoria has had the steepest fall of 23%, followed by the ACT (20.7%), WA (20.5%), NSW (20.4%), Queensland (18%), South Australia (16.8%), Northern Territory (15%) and Tasmania (14.9%).
What now in the recovery phase?
Addressing the recovery phase for the economy, which will begin in earnest as lockdown restrictions ease, the Treasurer said the values and principles that have guided Coalition reforms in the past must guide the country again in the future.
These were “encouraging personal responsibility; maximising personal choice; rewarding effort and risk-taking whilst ensuring a safety net which is underpinned by a sense of decency and fairness”.
Frydenberg added: “Unleashing the power of dynamic, innovative and open markets must be central to the recovery, with the private sector leading job creation, not government.
“There is a risk that protectionist sentiment re-emerges on the other side of the crisis, and for that we must be vigilant. While we must always safeguard our national interest, we must also recognise the great benefits that have accrued to Australia as a trading nation.”