Winston Churchill was famous as a leader who inspired his people to persevere during war time. His words still ring true during the current COVID-19 crisis: “There is no time for ease and comfort. It is time to dare and endure.”
As we look to flattening the curve even more (or for some of us lockdown has meant fattening the curve), we are also looking ahead to what recovery and the new normal will look like.
When the federal government has just spent (so far) close to $300 billion on three stimulus packages, then obviously things won’t be the same. While this means that a surplus is highly unlikely for a very long time (it took us about 12 years to recover from the GFC); at least we can take comfort from the fact that Australia’s position heading into this crisis was stronger than many, with both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) forecasting that Australia would grow faster than comparable economies, including the UK, Canada, Japan, Germany and France. The IMF and OECD indicate that Australia is one of the advanced economies best placed to provide fiscal support without endangering debt sustainability.
Whilst our new debt level may be ‘sustainable’, it still needs to be repaid. However, it does not necessarily mean increased taxes or some kind of austerity program. According to some economists, Australia could take its time in repaying the debt, which would still be relatively low at a forecast 26 per cent of GDP, compared to the latest OECD figures of an average 110 per cent of GDP for gross debt (these figures are not strictly comparable but make the point). If we overcome our national obsession with surpluses, we could afford the debt for a while longer whilst investing in renewed productive capacity, as we did after World War II where debt levels soared to 120 per cent of GDP. We need a similar kind of boost or boom after we come out of this crisis and start reviving the economy from its hibernation.
Unwinding and recovery
There has been speculation about whether the recovery will be ‘V’, ‘U’ or ‘L’ shaped. Some economists are predicting (or hoping) for a V shaped recovery, which would see a sharp rebound in economic activity, starting in the second half of the year. Others are saying it will definitely not be V shaped. Most agree that the economic recovery can only follow from a recovery in the health crisis – as Churchill said: “healthy citizens are the greatest asset any country can have”. Many economists will be watching the number of new COVID-19 cases being reported, as well as other health metrics. Then the economic indicators being watched include those relating to the labour market such as employment rates (which often lag) and hours worked; plus retail sales of both essential and discretionary spending.
All of these metrics will be important for businesses planning their pivot from response to recovery. They will also be critical for the government which will have to consider how and when to unwind all of the ‘temporary’ measures it has put in place; and what will be the longer term structural and budgetary implications. There has already been speculation around keeping higher levels of Newstart and revised funding of the child care sector, to name only two.
Working from home
There are many more questions being asked, including what does the new normal look like for all those workers who commute every day to a fixed place of employment. The crisis has shown that for many, working from home is a viable option. It has forced businesses and workers to wholeheartedly embrace the digital age. What does this mean for workplace laws, workplace health and safety, urban planning, transport, management and so on. Importantly, there might be some lessons to help boost Australia’s falling rate of productivity, especially around the use of technology.
The new normal will also depend on the reaction to globalisation and integrated supply chains. For Australia, which has the most concentrated trade profile in the world, this crisis has glaringly exposed the vulnerabilities of our supply chains. There is now widespread speculation about re-industrialisation and becoming more self-sufficient in the crucial medical supplies that matter in a pandemic.
In our quest to prepare for the new normal, the words of Churchill again ring true: “Do not let spacious plans for a new world divert your energies from saving what is left of the old.”
Vicki Stylianou, group executive, advocacy & technical, IPA