Update: When we first wrote this story on the 31st of March, the worldwide infection rate of COVID-19 was at 784,000, according to the John Hopkins University of Medicine. Now, as of the 4th of September, it’s at… 26 million.
And, despite only roughly 26,000 of those coming from Australia, people have lost their jobs, homes and security. Our economy is in shambles and Melbourne has been under a coronavirus lockdown since the 7th of July. As of the 2nd of September, the government has officially confirmed we’re in a recession. The first in our entire lifetime and the “biggest economic plunge on record.”
Keep reading for the original story and to find out what exactly a recession is and what it means for you and me.
With the worldwide infection rate of COVID-19 sitting at 784,000 at the time of writing, economies around the world are beginning to feel the affects and, if experts are to be believed, are leading to a domino effect of recessions around the globe.
But, how does this affect Australia, what does it have to do with the coronavirus outbreak and, uh… what is even is a recession?
Quick FYI, this story is kinda depressing.
What is a recession?
Quick econ lesson: Economic seasons are broken down into four quarters. A recession is when an economy faces two consecutive quarters of financial decline.
As Associate Professor at RMIT University’s School of Economics, Finance and Marketing, Simon Feeny, explains to Syrup, “it relates to falls in Gross Domestic Product (GDP) or economic output.”
So, basically, a period of general decline in the GDP (usually for ‘two quarters’ but there’s no hard-and-fast rule), can be classified as a recession.
A recession in society can lead to mass job cuts and industries and businesses folded. While some admit house prices drop during these periods, people often don’t even have the financial means or a stable income to purchase or sign a new rental lease.
WHY HAVE WE NOT EXPERIENCED ONE IN *CHECKS NOTES* 29 YEARS?
For most of us, however, we’ve never lived through a recession. In fact, the very concept is quite alien. Compared to the U.S. and Europe, the Australian economy has experienced uninterrupted growth for 29 years.
Experts say that is mostly due to our relationship with China, booming mining industry (despite the yikes enviro impact…) and exported tertiary education system. In Australia, universities survive off international students, and our exports to China make up one third of our exported output.
While this has made us extremely lucky and allowed for various industries to grow in the country, it’s also, as various experts warn, left us incredibly unprepared to handle what’s to come.
“It is currently a very fluid situation,” added Feeny, “but the chances of a recession in Australia appear to be increasing week by week.”
What does a recession have to do with the Covid-19 outbreak?
As we’ve seen over the last few weeks, Covid-19 has completely shut down practically every industry in the country that’s not an “essential business,” like supermarkets, pharmacies or GPs.
As Feeny explains, given our close relationship to China, when the virus first hit the country and spread, we were one of the countries most at risk.
The Covid-19 outbreak has resulted in “a falling Chinese demand for Australian exports such as iron ore and falls in university enrolments. The tourism sector is badly affected as people abstained from international travel. The spread of the virus has also hit consumer confidence hard, and that is bad news for retailers as people refrain from spending.”
When the outbreak first hit worldwide, event organisers in the arts and entertainment industry cancelled their upcoming shows, festivals and film debuts after the World Health Organisation (WHO) advised against social gatherings of 500 people. Then, as that number got smaller and smaller, according to a I Lost My Gig Australia report on the 27th March, the Australian arts and entertainment industry lost over $316 million from cancelled events. Casual workers were now left unemployed with no benefits and full-time staff stood down with no pay.
As the confirmed cases of Covid-19 in Australia continue to increase exponentially, Prime Minister Scott Morrison announces more and more sectors of the economy to shut down each day. People were told to stay at home as a public safety requirement to slow the spread of infection, restaurants and cafes are now only allowed to offer takeaway, and more and more people are left unemployed as said industries are met with lower demand and need fewer staff on duty.
According to CEIC data, the unemployment rate in Australia at the beginning of the year was around 5 percent. But now, experts are predicting it to skyrocket to 15 percent. All thanks to Covid-fucking-19.
Even worse, now that Covid-19 is hitting the U.S. economy, which now not only has the most confirmed cases in the world, but is also on the verge of a recession, as well, our other biggest buyer of our exported goods is no longer looking to buy. What that means is that Australia, a nation that financially sustains itself off exported goods and services is about to find itself without a client to sell to. And that’s a big, big problem.
“It is likely that the U.S. economy is falling into a recession,” shared Feeny. “And given that the U.S. is a large market for Australian exports and source of foreign investment, this is another factor which is increasing the chances of a recession here.”
What does a recession mean for me?
“Should the Australian economy enter a recession, young people will be affected through fewer employment opportunities and lower wages,” explained Feeny. “Governments will have less revenue so young people will be impacted by cuts in Government spending on essential services such as health, education and welfare.”
And as we’ve seen, the government wasn’t prepared for this either. When millions of Australians and young people went from spending their days serving coffee and customers to lining up at Centrelink from 7am, they turned to needing financial support. The MyGov website wasn’t prepared to handle such an influx of new users browsing the server and crashed. In response, friends shared when was the perfect time to go online (allegedly, the trick was to go online at 5am…) so you could actually access it, and even then, various casual staff and non-Australian residents who’ve lived here their whole lives found they weren’t eligible for benefits.
Since then, the government has proposed a $84 billion stimulus package. It includes $100,000 toward small businesses to keep workers on during the crisis, $750 into the pockets of the 6.5 million Australians receiving government assistance, and new initiatives and support to mental health, domestic violence and community services.
“It is important to note that there are other very significant impacts of these events which aren’t captured by changes in GDP statistics in the short-run,” concludes Feeny. “These include the impacts on peoples’ physical and mental health. Such shocks can lead to anxiety, depression and falling aspirations while recessions are often associated with an increase in domestic violence.”
Ultimately, the problem here is we don’t exactly know when this will all be over and things are escalating too quickly for businesses and the government to effectively manage. Right now, experts are predicting we’re about to enter an economic period to the likes of which we haven’t experienced since “The Great Depression.” And look, you know if someone’s saying that, it’s not a good sign.