People and businesses to lose $60 billion in just months

As the Covid-19-induced downturn continues to grapple the world, more and more is becoming clear on its devastating impact on the economy. This summer alone, Australia will see a massive $60 billion in wages and profit evaporate.

Estimates from the Australian government and independent studies have already found that the financial blow of the Coronavirus will run in the tens of billions, with one prediction from KPMG putting a near $17 billion price tag to the loss of GDP in 2020.

Now, a new study by professional services rival Deloitte suggests that for people and businesses, the loss of income will be far more upsetting. With most economic activity on hold, businesses is some sectors are seeing their revenue slashed, with the leisure, tourism and retail sectors hardest hit.

Meanwhile, companies buckling under the pressure are forced to lay off their employees, while others are sending their staff on furlough or cutting their salaries, meaning that workers are taking an income hit. Meanwhile, the largest part of the previously booming gig economy has come to a near standstill, as organisations have cut their use of externals in a bid to save on discretionary costs. 

Combined, the hits of lost profits and lost wages in the period April to end of July – the likely deepest period of pain – is expected to amount to almost $60 billion, according to an analysis by Deloitte Access Economics. This amount already incorporates the extraordinary support that has been rolled out by the federal government, meaning that the pain is felt directly in the pockets of people and businesses. 

“Covid-19 is carving a path through the incomes of Australians,” said Chris Richardson, a partner at Deloitte Access Economics, the economics consulting arm of Deloitte, a global professional services firm. 

The analysis highlights that the pain of lost incomes isn’t equally distributed. Not surprisingly, cafes, restaurants, pubs, hotels and motels are taking the hardest hit, with a shortfall of $8 billion in lost wages and profits expected in the next handful of months. 

The damage is particularly harsh given the size and footprint of the industry: while it accounts for less than 3% of the economy overall, the fallout represents 13% of the $60 billion sum. There’s almost as big a hit to the arts and recreation sector, as the lockdown is obliging the likes of gyms, sport clubs, entertainment centres and movie theatres to shut their doors. 

Mining is forecasted to see $5 billion wiped from its income level, with the construction sector expected to face similar misfortune. The losses are also notable in professional services, as demand for consultants, lawyers, accountants, IT support, architects and advertising experts has fallen dramatically. 

Critical industries such as education, utilities and the government are least impacted financially. Outside some public-run libraries, museums and galleries, the public sector is running as normal.