IMF forecasts dire economic outcomes
The “Great Lockdown” – as the International Monetary Fund dubbed the coronavirus crisis this week – is plunging Australia and the world economy into the worst recession since the Great Depression of the 1930s. Just as that cataclysmic economic event seared itself into the psyches of those who lived through it, this episode is sure to do the same, with forecasts it is going to get much worse before it gets any better.
This massive disruption has caused a huge disjunction between the Australia of December 2019 and what we are becoming in April 2020. It recalls Stan Cross’s iconic political cartoon, drawn midway through the Depression, of two construction workers high on a building, both clinging to a girder, the pants of one around his ankles and the other holding on to them while laughing uproariously. The caption at once amused Australians and expressed the deep trouble they were all in: “For gorsake, stop laughing: this is serious!”
The IMF’s forecast gives no one on the planet anything to laugh about. It has the world economy contracting by 3 per cent this year – the biggest decline in eight decades. Its assessment of Australia’s outlook shatters any illusions this will be done and dusted within six months. The challenge to the Morrison government’s own assumptions is stark. Treasurer Josh Frydenberg took out some pre-emptive insurance on Tuesday, releasing Treasury’s revised forecast for unemployment in the June quarter. His sugar-coating couldn’t hide a very bitter pill.
Frydenberg told a depleted gaggle of journalists in parliament’s Mural Hall that unemployment is expected to peak near 10 per cent as business closures and the enforced shutdown of much of the economy begin to bite hard. In real terms, that figure means 1.4 million Australians have lost or will lose their jobs. The treasurer claims that without his $130 billion JobKeeper package the jobless number would have peaked at 15 per cent. What neither figure shows, however, is the extent of underemployment or how many of the six million people his scheme saved from the dole queue have seen their incomes smashed.
Labor is now calling on the government to release the other economic forecasts that underpin the unemployment projection, as would normally happen in the May budget. So far, the call has fallen on deaf ears. Former prime minister Kevin Rudd says without these forecasts we can have no idea of the “growth gap” the government is trying to fill with its stimulus. Nor, he says, can we know just how much more is needed.
The IMF’s analysis suggests that if Prime Minister Morrison and Treasurer Frydenberg do not extend their $130 billion JobKeeper wages subsidy and $14.1 billion JobSeeker program beyond midyear, Australia will experience an even bigger shrinking of economic activity and employment.
In its World Economic Outlook, the IMF predicts a 6.7 per cent contraction in the Australian economy in 2020, with unemployment expected to rise to an average 7.6 per cent in 2020 and a higher 8.9 per cent in 2021. Note the word “average”. On this analysis we may see a much higher peak than 10 per cent next year. Frydenberg points to the IMF also predicting a strong rebound in the Australian economy next year. This optimism is predicated on the world being much more successful in containing the virus than it has hitherto been. Frydenberg says when the IMF was preparing its analysis Australia’s coronavirus curve had not flattened to the extent that it now has, nor was the wage subsidy program announced. In all probability he is arguing at the margins.
In a worst-case scenario, the IMF sees the world economy contracting 9 per cent this year and 8 per cent next year. That is directly linked to the virus spiralling out of control. As Rudd, now an adviser to the International Monetary Fund, told RN Breakfast: we are still to see what happens in Africa, South America and the rest of Asia. The truly horrific death toll in the United States and the rebound of infections in parts of Europe and Asia suggest international travel will likely be severely restricted for some time to come. Indeed, Trade, Tourism and Investment minister Simon Birmingham says there’s no chance of it resuming before the end of this year – at the earliest. Travel is an engine room of the world economy.
Labor is calling on the treasurer to use the discretionary powers parliament gave him last week to extend JobKeeper to the million casuals who have missed out on the payment and the up to two million foreigners – students and workers – who are here on various visas. Shadow treasurer Jim Chalmers says unemployment will be higher than necessary and persist for longer than necessary “if the treasurer doesn’t exercise his powers” for those workers currently left behind. So far, Frydenberg is baulking at the cost, citing an $18 billion price tag for every one million people on the subsidy. It’s a strange reluctance, given how piddling the amount is in the current scheme of things.
In diplomatic circles, there are real concerns for the damage Australia is doing to its international reputation with this hardline exclusion of people who make a real contribution to the economy. It is a particular worry to the tourism, education, agriculture and construction sectors. And it is in sharp contrast to the approach of Singapore. There, Prime Minister Lee Hsien Loong put out a YouTube message saying, “We are playing close attention to the welfare of foreign workers.” He acknowledged their contribution and promised them income support and healthcare.
On Thursday, Scott Morrison, the premiers and chief ministers who make up the Covid-19 national cabinet reviewed the latest health advice as they began looking in earnest for a staggered way out of the economy-crushing lockdowns. The NAB Monthly Business Survey would have left them in no doubt about how diabolical the situation is. Chief economist Alan Oster says business confidence saw its largest decline on record and is now at its weakest level in the history of the survey, going back to 1989. Oster’s survey says the level of unemployment will stay unacceptably high until 2022.
There is a political danger here for all government leaders. Unemployment touches not only those who have lost their jobs and their families but also the millions who fear for their loss of work. The job freefall certainly undermines Morrison and Frydenberg’s boast of creating 1.5 million new jobs. For starters, the claim is based on population growth due in large part to immigration. Immigrants are sure to be in short supply in the months ahead. In normal times spiralling unemployment impacts badly on incumbent governments – but no opposition anywhere in the country can count on it favouring them this time.
The falling coronavirus infection rate is no leave pass, either. The prime minister is well aware there isn’t room for complacency. He told SBS News that Australia still has quite a number of things to get in place “to have the protections there that would enable those sorts of restrictions to be eased many, many weeks from now”. Chief among them is more extensive testing.
Midweek, Victoria announced the widest testing criteria in Australia, beyond travellers and suspected cases to anyone with fever or acute respiratory symptoms. Other states and territories are embarking on the same strategy. Once in place, it should enable the identification of the virus beyond clusters, making it easier to risk lifting restrictions in the broader community.
This is yet another manifestation of the worth of the national cabinet. So successful has it been that premiers of both political persuasions – Labor and Liberal – are inclined to support Scott Morrison’s hope of making the arrangement a permanent fixture.
But former treasurer Wayne Swan, who was a participant in the formation of the G20 in response to the global financial crisis in 2008-09, believes the national cabinet will not survive this crisis. He says the G20 has gradually run out of steam, as the trigger for its existence receded and new leaders emerged who haven’t shared its internationalist outlook. It still exists but without the weight its inaugural players gave it. No doubt China’s Xi Jinping and America’s Donald Trump share much of the responsibility for this.
The national cabinet is an organisation that has suited this crisis, Swan says, but there are grave doubts it would resolve equally pressing federal challenges such as climate change and energy. There is also the suspicion that Morrison suggested the idea as a way of sharing the burden, if not the blame, for having to impose some very harsh measures on the nation.
It will be a long time before Australia gets back to business as usual; perhaps not so long before we return to politics as usual.
This article was first published in the print edition of The Saturday Paper on Apr 18, 2020 as "Anxiety fanned depression".
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