Second Covid-19 wave can cost over $100 billion, warns Deloitte
Experts at Deloitte Access Economics suggest that a second wave of infections in Australia could land a devastating blow of $100 billion to the economy, as fear of infection will subdue consumers and businesses alike.
The forecasts were made by partner at Deloitte Access Economics Chris Richardson in conversation with The New Daily. Covid-19 cases in Victoria reached their highest peak so far earlier this week, recording 127 new cases in a single day. The news and the closure of the border between New South Wales and Victoria has sparked nationwide concerns about a second wave of infections.
Richardson warned that if the virus is not contained, fear and hesitation would skyrocket amongst consumers, and consequently amongst businesses, causing revenues to plunge and unemployment to soar. Consumer spending, which was already waning before the crisis, would all but dry up. The resultant economic damage – already running into the tens of billions – could reach $100 billion over the next two years.
“If everybody’s a bit more cautious, then that hurts the economy. Which comes back to that central point: Confidence. You give people confidence around their health, then their actions will give confidence back to the economy,” he said.
The spike came immediately after Deloitte Access Economics published a comprehensive economic forecast that outlines several hard facts of the economic crisis, while offering some silver lining. No doubt, the analysis concludes, the crisis will see a prolonged recovery period, characterised by high rates of unemployment and soaring debt.
Much like the rest of the world, Australia is well and truly in a recession, and sectors in the discretionary spending segment such as cars and luxury goods will see a dearth of spending for the foreseeable future, according to Richardson. Meanwhile, Australia’s reliance on migrants – although the key to resilience in recent years – has also been an achilles heel of sorts. The sudden pause in travel has left labour scarcity across the economy, while dealing a more direct blow to the tourism and education sector.
A robust recovery
Nevertheless, the forecasts also offer some reason for hope. The federal budget was balanced, and debt was low when the crisis hit. Australia’s response has also been among the most efficient in containment. All of these factors combine to gear the market up for a robust recovery.
Last month, Deloitte Access Economics had put forth three potential scenarios for the Covid-19 economic impact. In the ‘mild’ case, Australia would lose just under 5% of its GDP, amounting to $90 billion. The ‘harsh’ and ‘severe’ case scenarios would see losses of 5% and 7% respectively, accompanied by major spikes in unemployment and plummeting investments.
The latest analysis assumed that Australia would continue its path of containment of the virus, restrictions would be lifted both domestically and globally, and a vaccine or effective treatment would emerge by the middle of next year. But, if a second wave and another nationwide lockdown unfolds, the scenario could very quickly become uglier.
In the mean time, Richardson suggests that the government should continue its efforts to contain the virus, while also continuing its support to the economy. At this stage, he advises to keep the stimulus initiatives in place, but take a more strategic approach, prioritising businesses that have a real chance of survival. “This is the only sustainable way to keep economic support in place,” he concluded.
