Recession is nearly inevitable. The question now is how deep and how long
Published at the Guardian, Wednesday March 11
It’s hard to look at the health data on Covid-19 without serious trepidation about the economic effects. The first wave – the contraction in travel-exposed sectors such as higher education and tourism – has already arrived. Treasury and the RBA estimate the impact on these two sectors alone will wipe 0.5% off GDP this quarter.
The second wave could be much bigger. If we want to avoid significant death rates among the vulnerable, we will need to take strong measures to contain the spread. As we’ve seen in China and South Korea, doing this effectively means shutting down childcare centres, schools and many workplaces for a period.
This will be a big hit to business activity and consumer spending. Recession is nearly inevitable. The question now is how deep it will be, and how long it will last.
The No 1 priority for economic stimulus in the short term is to shore up cash flow for businesses during the crunch period. We must avoid causing otherwise viable businesses to hit the wall. Tax deferrals, interest-free loans and cash payments should all be on the table.
The No 2 priority is to get cash into the hands of households in the event of containment. This is more than just a demand-response measure – it’s about ensuring that working Australians, almost 25% of whom are casual and do not have access to paid leave entitlements, are able to survive during a sustained period off work, either because they are showing symptoms, their workplace is closed or their children are at home. While Scott Morrison would prefer businesses to pay, not all will, and we must ensure that no exposed worker avoids going into isolation because they fear they can’t afford it. In these circumstances, cash handouts are both an economic and a public health measure.