According to AMP Capital chief economist Dr Shane Oliver, April could be the low point for the Australian economy, with activity picking up faster in Australia than abroad.
“If, as appears likely, a phased easing of the lockdown starts this month, then April should prove to be the low point in economic activity and growth should return to the economy in the second half,” Dr Oliver said.
While highlighting that Australia will not bounce immediately back to normal, the economist explained three ways in which Australia’s performance during the pandemic could help it on the other side.
Dr Oliver explained: “This does not mean that things will quickly bounce back to normal — the easing of the lockdown will likely be gradual to minimise the risk of a second wave, some businesses will not reopen, uncertainty will linger, debt levels will be higher and business models will have to adapt to different ways of doing things.
“This may mean returning to the office on a rotational basis and shops and restaurants reopening but with distancing rules.”
Australia has performed better than many countries in controlling the coronavirus
“After a rapid escalation in new cases, Australia imposed a shutdown around 22 March. New cases peaked in late March at over 500 a day and have since declined to less than 30 a day, albeit with a few clusters still causing problems. New cases may have peaked in the US but are still averaging around 29,000 per day,” Dr Oliver said.
When Australia is compared with other OECD countries based on recovery rates, active cases per capita, total cases per capita adjusted for the number of days since the first case and testing per capita, Australia ranks first, with New Zealand second, compared with Italy at 28th, the UK at 31st, Sweden at 36th and the US, the worst performer in the OECD, at 37th.
Australia has seen a superior policy response
As governments around the world respond to the economic threats caused by the COVID-19 pandemic, Dr Oliver said the structure of the Australian stimulus puts it in a strong position.
“In many countries, it includes a large element of loans and debt guarantees as opposed to actual fiscal stimulus in the form of spending or tax cuts. For example, providing a loan (or a guarantee to enable a loan) to a business to help it survive the shutdown versus providing it with a wage subsidy,” Dr Oliver explained.
“Loans and guarantees are helpful, but they leave businesses more indebted, whereas actual fiscal stimulus provides a direct boost.
“So, actual fiscal support is a better measure, and on this front, Australia at 10.6 per cent of GDP has provided by far the strongest fiscal stimulus of G20 countries.”
He also believes the centrepiece policy, JobKeeper, was a superior approach as it keeps people employed, minimises “confidence-zapping negative headlines”, preserves employer-employee relationships and keeps workers getting paid while supporting struggling businesses.
Australia’s major trading partner is 2–3 months ahead of the rest of the world
The leading economist believes Australia could be a couple of months ahead of the world when it comes to reopening, giving it an advantage over other countries.
Dr Oliver concluded: “Finally, we may benefit from our biggest export market — China, which takes a third of our exports — being ahead of the global recovery curve by around two to three months and focused on infrastructure spending.
“This explains why prices for our key export — iron ore — are holding up relatively well compared to, say, the price of oil (of which we are a net importer).”
