Australia faces a double-dip recession – macroeconomic influencers
Join Our Newsletter - Get important industry news and analysis sent to your inbox – sign up to our e-Newsletter here
X

Australia faces a double-dip recession – leading macroeconomic influencers

19 Jul 2021

Lapses in Covid-19 vaccine procurement by the government has thrown Australia into turmoil with increasing transmission, increased restrictions and a likely second recession.

Australia faces a double-dip recession – leading macroeconomic influencers
Credit: angellodeco/Shutterstock.com.

Economists believe that the economic effects of the current lockdowns will be long-lasting, with estimates of a negative September quarter GDP, followed by a weak December quarter.

Stephen Koukoulas

Stephen Koukoulas, an economist and managing director of Market Economics, shared an article on Australia headed towards a possible second recession after the emergence and spread of the Covid-19 disease in the past month. Koukoulas believes that the unwillingness and inability of Prime Minister Scott Morrison to purchase more coronavirus vaccines has led the country to be the last in the industrialised world in terms of vaccination rollouts.

Australia, as a result, has been caught into a double-dip recession with half of the country facing Covid-19 public health restrictions, lockdowns, shut businesses and lost jobs. According to health experts, if more Australians had been fully vaccinated the second Covid-19 outbreak would not have been as severe.

Economists are also pointing at a double-dip recession because the government has extended less support to those affected by the prolonged Covid lockdowns, all tied up in red tape and inadequate to lift the economy. Consequently, financial assistance is not enough to allow businesses and workers stay afloat or maintain spending at a steady pace to avoid a weaker economic outlook.

Linda Yueh

Linda Yueh, an economist and adjunct professor of economics at the London Business School, shared an article on the long-term effects of pandemics on inflation and how Europe’s trend inflation has responded to Covid-19 comparing historical data of pandemics since the 14th century.

Economists believe that following a pandemic event, trend inflation falls sharply below its initial level for nearly a decade. This long-run depressing effect is also observed in major European countries such as Italy, France, Germany, the Netherlands, and the UK. However, authors state that the effects of the Covid-19 pandemic on inflation will play out differently this time.

As governments across the globe invest in large-scale stimulus programmes to prevent layoffs and bankruptcies, Covid-19 vaccinations have helped reduce lockdowns and resume economic activity in some countries. On the other hand, the service sector continues to struggle to hire staff and meet the pent-up demand and supply chain disruptions have led to a surge in commodity prices. Economists believe it is too early to ascertain which factors will ultimately dominate inflation dynamics.

Arindrajit Dube

Arindrajit Dube, a professor of economics at the University of Massachusetts, retweeted his analysis on whether the premature ending of pandemic unemployment insurance (UI) benefits actually contributed to an increase in employment in the US.

According to his analysis, the states that cut these benefits did not see a rise in the number of people employed, and in other cases the number of people in jobs may have even declined. Almost 25 US states withdrew the pandemic unemployment benefits to push back workers into the labour market and fill the abundantly available jobs lost during the Covid-19 pandemic.

However, Dube’s analysis found that the mid-June and early July UI expirations did not translate into increased employment in the immediate two to three weeks of the expiration of benefits. Economists state it is too early and more data is required to determine the impact of the benefits expiration on employment.