Perhaps the most difficult and frustrating aspect of our current economic circumstances is mounting uncertainty - the lack of any real idea of actually where we are, just how much worse it might get, and how we can recover.
The main fear is of a second wave of the virus, and the need for further lockdowns, which could have quite catastrophic further consequences for our economic prospects.
Even setting this fear aside, there is the specific uncertainty about how the government will disengage from JobSeeker, JobKeeper, and other assistance, and how borrowers and renters will deal with having to ultimately meet "catch-up" payments on their mortgages, other loans, and to their landlords, as they struggle, as they were pre-COVID, with the costs of living.
The government hasn't been that forthcoming with how they see things. Indeed, their messaging has changed significantly from the early quite definite expectations of a quick "bounce" or "snap" back, to recently quite vague indications that recovery may take some time, but with no detail of their recovery strategy. This has been in contrast to the recent Treasury/RBA statements that have been more optimistic about the extent of the likely fall in GDP and the likely peak of unemployment compared with their initial assessments.
The global outlook is obviously deteriorating.
The global outlook is obviously deteriorating. Not only has the overall rate of infection not yet peaked, but we are seeing alarming daily case numbers from the US and the Americas, and clear evidence of a second wave in many countries, including China.
The usually conservative IMF has recently downgraded its April global growth forecasts, with its chief economist, Gita Gopinath, insisting "this is a crisis like no other".
The IMF now forecasts that the global economy will shrink by 4.9 per cent this year, a total loss of global output of some US$12.5 trillion, equivalent to the loss during the Great Depression. Further, they predict that global GDP by the end of 2021 will still be 6.5 per cent smaller than it was at the beginning of 2020.
They predict US GDP will come off by some 8 per cent, even with the US budget deficit reaching about 24 per cent of GDP, which is unmatched in peacetime. The only major economy to grow this year will be China but at just 1 per cent, recognising that China "manufactures" its growth numbers.
All this is made worse by the collapse in world trade - down 12.4 per cent, month-on-month in April, after a 2.4 per cent fall in March, and by 16.2 per cent year-on-year. Eurozone trade was off 28.5 per cent year-on-year. As bad as this appears, it is important to recognise that these numbers have been "cushioned" by central banks that have ploughed about US$17 trillion into financial systems in this crisis. The concern is how they can disengage from such bloated balance sheets.
At the same time, individual countries are taking advantage of low interest rates by increasing their global borrowings - Austria borrowed 2 billion euros at just 0.88 per cent for 100 years. The debt (public and private) overhang, combined with excessive stock market values, which may not be validated in the coming earnings season, threaten another financial crisis.
Unfortunately, while they tended to put ideology aside, and co-operated pretty effectively in their initial responses to the crisis, our politicians have soon reverted to their old ways, back to scoring points on each other, rather than governing. The particular focus has been on winning the Eden-Monaro by-election this Saturday.
So, rather than take us into their confidence, and speak openly and transparently about the real risks of a second wave/further lockdowns, our economic prospects, and their planned recovery strategy (if indeed they actually have one), we've been subjected to a series of "distractions", and by-election specific, targeted announcements - everything from unidentified cyber threats by some foreign state operative, to a cyber defence package, to environmental approvals for Snowy Hydro 2.0, to an overall defence reset, and much media "colour and movement".
Those many residents of Eden-Monaro having endured, both personally and as a community, the government's mismanagement of the bushfires (and in many cases are still waiting for the promised assistance), and then been hit by the virus and an imposed recession, must surely be somewhat cynical about a strategy that assumes that their vote can be "bought" by some policy announcement or "swayed" by some clever marketing slogan?
- John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.