Australia’s economy would be in serious trouble during a global recession, economists fear, but one says the focus should be on public health, not money.
As global share markets face the biggest shock since the GFC, attention has turned to how the coronavirus outbreak will affect ordinary people in the short and long term.
In badly affected countries such as Italy and Spain, both the virus itself and the preventative measures to battle it are wreaking economic havoc.
Australia’s economy may be in trouble. Image: Getty
U.S ‘May Be’ Heading Toward Recession
President Donald Trump’s response to the coronavirus outbreak in the U.S. has sparked recession fears.
On Monday, when Trump was asked if the U.S. was slipping toward a recession, he replied: “ well it may be”.
American economist Alan Blinder, the former vice-chairman of the U.S. Federal Reserve, told NBC last week he “wouldn’t be one bit surprised” if the economy wasn’t already in recession, with experts saying the Trump administration was too slow to respond to the virus outbreak.
Door To Financial Chaos Opened
Closer to home, health systems are under immense strain, people are staying home and not spending money, public spaces have been all but deserted, and workers have been or will be laid off jobs because businesses simply have no customers or ability to operate.
Australia has not been spared a COVID-19 driven stock market hammering either.
On Monday, the ASX200 index recorded its worst single-day ever, down 9.7 percent for a total plunge of 30 percent since February 20, while the All Ordinaries had its worst day since the 1987 ‘Black Monday’ crash, down 9.5 percent.
Australia’s retailers have taken a hit as shoppers stay home. Image: Getty
“The future looks pretty bleak at the moment,” Commonwealth Bank senior economist Gareth Aird told 10 daily.
“Markets are very volatile. They’re reacting the same as everyone else to the flow of information.
“We don’t know how this will play out over the next three to six months.”
Dr Stephen Kirchner, program director for trade and investment at Sydney University’s United States Studies Centre, said the “fragmented” nature of Trump’s coronavirus response potentially opened the door to financial chaos.
“They don’t appear to be on top of the problem yet, which may facilitate the spread of the virus,” he told 10 daily.
“Many states have shut school systems, which will have big impacts on labour force participation and activity. The potential impact on the U.S. could be as severe as in the global financial crisis.”
Australian markets are tumbling on the back of coronavirus concerns. Image: AAP
Kirchner predicted “a very deep recession” in America, which he said would have punishing impacts on Australia’s tourism and export industries. However, he said it may be a “short-lived” recession.
“Once the virus has infected a significant part of the population, markets will be able to bounce back, which could be as sharp as the downturn,” he said.
“That’s the good news, but sadly there’s a lot of pain to go through before then.
“The downturn we saw in China will be a similar magnitude as we will see in the U.S. That’s what makes it so serious in Australia.”
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Aird said an American recession didn’t necessarily mean an Australian recession, noting our increasing reliance on Asian trading partners.
However, both he and Kirchner pointed to the fact that much of the world — 151 countries, according to latest World Health Organisation stats — was battling coronavirus, meaning there are fewer options to help Australia to weather the storm.
Donald Trump’s coronavirus response has been criticised as slow and limited. Image: Getty
“We’ve seen America in recessions before when Australia has not had one, but it’s different now,” Aird said.
“We’re concerned about what’s happening globally, but we’ve got a domestic problem here to deal with.”
Kirchner said the worldwide outbreak was an “unprecedented” event for markets.
“It’s not only directly affecting our economy but our biggest trading partners at the same time,” he said.
“We’ve seen previous recessions overseas but this time it’s a downturn globally.”
‘Short Term Focus Needed’
Dr Simone Kelly, associate professor of finance at Bond University, held a different view.
“We can’t look long-term now, we need to look short term and save lives. Basic health and food should be the focus. Forget about the economy, go back to that,” Kelly said.
“Markets crash because of uncertainty. We can only stem that by stabilising the health of the population. It needs a different way of thinking. Forget your portfolio, think about your fellow person.”
She said the focus should almost solely be on health needs, not money.
“For a large percentage of the population, those above 50, this is not a joke. This isn’t about winners and losers in the market. Forget that and put the money where it needs to be,” she said.
“The more people who die, the worse it will be for the economy. In the short term, life is the most important thing.”