The Effect of Covid 19 on The Australian Economy

According to this, there’s a large impact of coronavirus on the economy, the covid-19 shows no signs of abating.as a vaccine is not discovered yet, lockdown is the only way to slow its speed. Because of lockdown major economies are getting pushed to the brink. The effect of coronavirus on the global supply chain is getting unrolled. Australian companies are likely to have a greater impact. Small companies with inadequate supply chain are about to face notable business disruption and loss.

The repercussions of covid -19 outbreak are being felt more strongly with every passing day. And despite progressive steps taken by the government and individuals across the globe, to stem its growth the virus remains to rush widely unchecked causing the loss of life and hitting business. The main manufacturing zones such as china have been badly affected by the virus outbreak. The fact that the origin of virus lies in china, the so called factory of the world, bore great damage from the economic perspective with a compelling percentage of supply chain reeling in shock and crumbling with each passing day. Adoption of just-in-time delivery and logistics has lead many companies to keep minimal inventory stocks.

The coronavirus crisis has delivered hammer to blow Australian economy, it has inflicted a jolting collapse. Millions of Australians became jobless in the span of a week. The restaurants and retail markets are bearing a great loss. Airlines and tourist attractions are suddenly deprived of customers and cash due to travel bans, maintenance of social distance, office shut downs and several other measures have been adopted to fight coronavirus.

In Australia the impact of the virus were first felt by the :

Business sectors, the covid 19 has forced staggering 70% of business in the hospitality sectors to reduce the hours of their staff and 43% to either sack their leaves or place them on unpaid leaves. The Australian Bureau of statistics has released a new data disclosing the impact of pandemic on business, after surveying 3000 companies in the days after government’s strict instructions on social distancing, which was announced on 29th March. Two-thirds of businesses across all sectors reported a deficit in cash flow. Roughly the same reported that they have suffered decrease in demand.

Stock Market Falls

The extent of damage can be seen on the stock market, which fluctuated greatly in the corona time. Apart from some extraordinary hikes, the overall market remained firmly down. Since selling of the stocks started taking place a month ago shares have lost about one third of their value. Most of the damage has been caused to the airline companies, but the pain has been felt across the spectrum. The market is now back to what it was three years ago. The effects on the big companies can be seen too the Qantas, Australia’s most popular airline has stood down without pay 20,000 of its 30,000 workers,

Virgin has forced its staff to take leave without pay. More than 100 stores of the flight centers have been closed. The retail stores of Australia have ceased their overseas operations, outlets across Europe and north America have been shut. Australia’s two big casino groups, crown resort and the star group, have released have been severely affected by the corona pandemic. The government announced that all the gaming and restaurants will remain shut, in order to limit the spread of corona virus. Crown estimates that it has more than 4000 small businesses that depend on it, the supplier of products and food for the casino or those who provide food outlets in its food courts. But small businesses in Australia are among those being hit hardest by the coronavirus pandemic.

Even before the introduction of stage three measures, 63 per cent of the small companies were already bearing the negative impact, the new research has shown. According to the QuickBooks Australia and researches conducted by the YouGov it is clear that two out of three small businesses had negative impacts even prior to onset of stage three restrictions. The survey unfolded that 41 per cent of small businesses have experienced more than 50 per cent downturn in the revenue in the past two to three months. 12 per cent have considered cutting costs through temporary or permanent suspension of the employees. Dollars have been instantly plunged out of small and medium sized businesses that mostly depended on face-to-face trade-events, restaurants, shops, cafes etc. They have started to stop their services for the people, such activities may lead to housing crisis within weeks as suddenly unemployed workers won’t be able to pay their rent or homeowner’s loan.

Impact of Coronavirus on The Australian Dollar

The Australian dollar (AUD) is a proxy for chinese Yuan (RMB). As the number of coronavirus infectd cases increased and the china’s economy slowed the, the Australian dollars depreciated to the levels not seen since the global financial crisis(GFC). Australia has close trade with china, this is one of the reason why covid-19 has a greater impact on the Australian economy. Any change in the economy of china can bring about a major effect on the Australian economy.in china the presence of virus has caused a marked downfall. There is a lack of raw material arriving from china which has greatly affected the Australian construction industry. The car production in china has been halted and this has a major impact on Australia both as an importer and as a key point on major trade routes.

RBA keeps cash rate at hold. the virus was identified at the beginning of the year, it seemed that Australia may have the opportunity to emerge unharmed. The economic data that was collected from china did no practical damage to the currency it was theoretically damaging though. Towards the end of January Australia began to stuggle. It was expected that the RBA would , declared to keep the cash rate benchmark unchanged but the investors have braced for the possibility of rate cut due to overall economic picture as a result Australian dollar did make some gains.

Australian economy has set to shrink in the second quarter. Australian treasurer josh frydenberg said that the restrictions introduced to minimize the effect of coronavirus could double the rate of unemployment to ten per cent and send economic activity falling by about A$50 billion ($32 billion) over thye period. Owing to social distancing rules and the temporary closure of bars, pubs, restaurant, retail stores ets, almost one million people have lost their jobs since March fourteenth. One third of the people were working in the accommodation and food services, this is the sector that was the most affected, have become unemployed. Youngsters have been hit hard by the pandemic outbreak.

According to the government data 18.5 per cent of the employees who are under 20 years of age are losing their jobs. There was an economic revelation that came as government discusses plans to establish , which “trans-tasman travel bubble” that would allow the reopening of flight to new Zealand and the passengers of the flight won’t be required to remain quarantined for two weeks. Mr. Frydenberg said that if Australia continues to abide by social distancing of same type for the eighth week lockdown seen in Europe, there will be a great damage to the gross domestic product, the GDP could get doubled to 24 per cent in the June quarter.

Steps by Australian Government to Curb the Impact of Coronavirus Pandemic.

The Australian government announced financial support amounting to an approximate of 10% of GDP of Australia. This was announced in two parts, approximately AUS $189 billion, including various financial liquidity support measures. This fund was distributed in various sectors as following: Employment centric steps.

The Australian Taxation Office (ATO) extended the time by which businesses could pay to their employees, and entitled to claim back the first Job Keeper payments. The Australian Taxation Office (ATO) confirmed that businesses hit badly by COVID-19 are able to all eligible employees a sum of $ 3000 gross amount for the first two fortnights of the Job Keeper support period. The date of enrolment for initial Job Keeper was extended to 31-May-2020

Export

A temporary prohibition was announced on non-commercial products that contribute to controlling and preventing the spread of COVID-19 Virus. This included disposable face masks;Disposable gowns,gloves, goggles, glasses and Sanitizer etc.

Econonmic measures including loans, debt repayments etc

Reduction in the minimum amount that can be withdrawn for account-based pensions and similar products by 50 per cent for the 2019-20 and 2020-21 income years in order to provide flexibility and ease in management of superannuation savings.

Restructuting of economic schemes like providing a temporary flexibility in the Corporations Act 2001 in order to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that may arise due to COVID-19.

Agribusiness

Austrailian government aimed at supporting the small industries, individuals, and small medium entreprises to continue their operations and minimize the effect of COVID- 19 on them

Measures to ease lockdown

Government promoted to work from home where ever it was possible and whenever it was possible. Public schools were reopned from April -29. Australian institute of sport developed guidelines to resume the sports and recreation activities. The first stage includes resuming of sports activities for children by ensuring that social distancing measures are incorporated. For exmaple, persons who are not engaged in physical activity with children like parents or guardians are guided to maintain physical distancing measures.

Travelling

All non-Australian citizens and non-residents are restricted from entering Australia.Australia and Newzealand government is planning to introduce a trans-Tasman COVID 19 - safe travel zone. This aims at benifitting the mutual trade between the two countries that would again start tourism,transport sectors, and sports between the two countries.

We observe that the countries like Australia with a relatively higher service sectors and high consumption bear a greater due to coronavirus pandemic. These economy of such countries is mostly diven by export of the goods, and rely on import for consumption of goods. These economies suffer because they are not being able to produce them on their own and facing a loss in demand/and lower prices for their export. Hence we can assume that the household production of Australia will decline by a$37.9 billion over the year. Economists across the globe predict a recession. UBS, an investment bank has done detailed economic modeling of the damaging effects of the virus. By taking into account what occurred during moderate, intermediate and severe outbreak. The moderate scenario has been discarded lately. In the intermediate scenario, the virus infection peaks in June and the economy begins to recover. Even if this happens, the economic growth is just 0.5 per cent for a year and the airline traffic is expected to return to normal by next July.

The severe scenario predicts that the infection will be at it’s peak in September. The economy falls backwards for the entire year, shrinking by 0.4%.Airline traffic would not come back to normal for a year or two. People under 30 have never witnessed recession in Australia and it would be very difficult for them to get through tough times. There will be a scarcity in jobs, and loss of livelihood opportunities, and wages which are already stagnant will remain static or go backwards.

Rating agencies like S&P says that the entire Asia –Pacific area is sure to enclose into recession, with Australia particularly vulnerable because most Australians work in casual shifts or they do part time jobs or work from home.

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