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The Impact of the Covid-19 Pandemic on the Australian Economy
Macroeconomics and microeconomics play a crucial role in determining monetary and fiscal policy within the Australian economy. Through recent developments of the Covid-19 pandemic. The current disease causing widespread global economic crisis is the coronavirus (Covid-19). The potential impact this disease has on the Australian economy is major. As it has forced reduction of person-to-person contact, closure of state borders. These restrictions have led to a rise in unemployment and sparked fear of economic recession. The Australian government, the Reserve Bank of Australia and the National Treasury have implemented economic plans and policies to calm the storm that the pandemic has brought upon Australia’s prosperous economy. Fiscal, and monetary policy will be analyzed along with the impact of unemployment, supply and demand and global domestic product have on Australian economic policy during the coronavirus pandemic. Fiscal and monetary policy have a strong correlation with macro- and microeconomics in Australian. The Reserve Bank of Australia’s review or economic policy along with the treasuries financial response to Covid-19 will be analyzed, and macroeconomic and microeconomic theories related and discussed within the Reserve Bank of Australia will be analyzed. These being unemployment, GDP and supply and demand.
Firstly, fiscal policy can be related to policies in which the government reduces revenue income and invest into the economy this can be exampled through tax revenue contrasted to current Australian stimulus support. As Australia is a small, open developed economy it has a floating exchange rate. Theories of economy suggest that fiscal expansion will produce higher interest rate that in turn will reduce expenditure. The Reserve Bank of Australia has the primary role of being Australia’s central bank. The RBA is responsible for maintaining financial system stability, financial system payments and banking services to the financial sector and to the Australian government. However, an important fact of the RBA is its role in determining monetary policy. In order to avoid harsh economic deficit, the RBA enacted recent policy adjustment in which the Reserve Bank Board reduced cash rate twice within March 2020. This intern This is boosting the cash flow of businesses and the household sector as a whole. It is also helping Australia’s trade-exposed industries through the exchange rate. At the same time, low interest rates do have negative consequences for some people, especially those relying on interest income.
As a result of state and federal government restrictions of border closure, travel and leisure activities Australian economy has seen a large spike in unemployment rates and reduce number of working hours. The macroeconomic concept of unemployment has large implementations on the nation’s economy. According to the Reserve Bank of Australia’s may report on economic overview it has been analyzed that Australia’s unemployment rate is set to rise to 10% by the end of the June period (Reserve Bank of Australia, 2020). Fiscal policy response has been attributed to the government’s economic response to support households and business through this time of uncertainty. The document release by the Australian Treasury outlined plans in which timely support to workers, businesses and households will be provided (Reserve Bank of Australia, 2020). The fiscal policy utilized by the Australian Government is further designed to position Australia’s economy in order to strongly recover once the health crisis has been overcome. The IMF and OECD have indicated that Australia is one of the advanced economies in the best positions to provide fiscal support without endangering debt sustainability. From government documents the response to unemployment and lower working hours has been the fiscal implementation financial support and economic stimulus. This can primarily be seen from the governments Jobseeker and Job keeper payment schemes along with early access to super annuation. The scheme is designed with the goal of supporting business in managing cash flow challenges, supporting individuals and impacted regions and communities
The macroeconomic principle of Gross Domestic Product (GDP) has been established through the Reserve Bank of Australia’s economic outlook in its statement of monetary policy (Reserve Bank of Australia, 2020). This document outlines the RBA’s response along with the cooperation of the treasury and Australian government, in which policy will be enacted to assist in maintaining Australia’s economy. The Australian economy is expected to record a contraction in GDP of around 10% over the first half of 2020. This correlates with the macroeconomic concept of unemployment as total hours worked are expected to decline by around 20% and the unemployment rate is forecast to rise to around 10% in the June quarter (Reserve Bank of Australia, 2020). However, the document by the RBA outlining monetary policy outlined. The fiscal response of Australian government e in maintaining current GDP has been examined from its consolidation packages of $320 billion. This is represented through fiscal and balance sheet support across forward estimation of 16.4% of Annual GDP. What has been analyzed is that the stimulus is designed to provide support and assistance to businesses and households through the period of economic uncertainty ahead. National interest has taken precedent over the matter and has resulted in updates in light of broader and potential prolonged impact resulting from the corona virus outbreak (Australian Government, 2020). It is also designed to position the Australian economy to recover strongly once the health challenge has been overcome. The IMF and OECD have indicated that Australia is one of the advanced economies in the best positions to provide fiscal support without endangering debt sustainability. As stated in the Australian Government document on recovery plans the economic recovery primarily focuses on the easing of restrictions which in turn will lead to improvement in employment outcomes for businesses when re-opening. This in turn will pick up household expenditure and lead to business investment decision making taking effect.
The microeconomic concept of supply and demand has been seen to have economic impact on Australian economies and markets. Due to increased unemployment decrease working hours and largely as a result of lower fuel prices and free childcare headline inflation is anticipated to be negative during the June period. Due to social distancing and restrictions on borders supply has been at an all-time low while demand has slightly risen. This can be primarily seen from retail such as Woolworths and Coles and its corporations such as biotech (Australian Catholic University, 2020). Another major supply issue came from supply chains for PPE as countries grapple with the spread of Covid-19. Supply and demand can be seen to have strong correlations with unemployment and lower working hours as people are more readily able to purchase goods however cash inflow to families is on a lower scale (Australian Catholic University, 2020). Unemployment can be further correlated with supply and demand as lower revenue production by business impacts cost and benefits and labor forecasting. If labor costs are higher than revenue production, then companies and business must reevaluate their expenditure (Australian Catholic University, 2020). This balancing of supply and demand was noted by the RBA’s economic overview and the Australian government further recognized this through its stimulus support packages to businesses, this being the job-keeper allowance.
Macroeconomics and microeconomics play a crucial role in determining monetary and fiscal policy within the Australian economy through recent developments of the Covid-19 pandemic. The current disease causing widespread global economic crisis is the coronavirus (Covid-19). The impact this virus has had on the Australian economy is major. The government through its use of monetary and fiscal policy has eased the economic burden that corona virus has caused. The macroeconomics of unemployment and GDP and microeconomics of supply and demand, where analyzed from documents from the Australian Government, the Reserve Bank of Australia, and the National Treasury.
References
- https://leo.acu.edu.au/course/view.php?id=33594§ion=14
- https://leo.acu.edu.au/course/view.php?id=33594§ion=15
- https://www.afr.com/markets/debt-markets/deficit-is-not-a-dirty-word-it-s-time-for-bold-fiscal-policy-20200531-p54y2w
- https://www.rba.gov.au/publications/confs/1998/pdf/debelle-vickery.pdf
- ACU, 2020. Lecture 8 GDP. [Online] Available at: https://leo.acu.edu.au/mod/resource/view.php?id=3030637 [Accessed 2 June 2020].
- Australian Catholic University, 2020. ECON200 Economics: Policy Frameworks and Markets; Lecture 2 Supply and Demand, Brisbane: ACU. Australian Government, 2020. Economic Response to the Coronavirus. [Online] Available at: https://treasury.gov.au/sites/default/files/2020-03/Overview-Economic_Response_to_the_Coronavirus_2.pdf [Accessed 2 June 2020].
- Chappelow, J., 2019. Nominal Gross Domestic Product. [Online] Available at: https://www.investopedia.com/terms/n/nominalgdp.asp [Accessed May 2020].
- Reserve Bank of Australia, 2020. Domestic Economic Conditions: Reserve Bank of Australia. [Online] Available at: https://www.rba.gov.au/publications/smp/2020/may/domestic-economic-conditions.html [Accessed 1 June 2020].
- Reserve Bank of Australia, 2020. Reserve Bank of Australia: Economic Outlook. [Online] Available at: https://www.rba.gov.au/publications/smp/2020/may/economic-outlook.html [Accessed 2 June 2020].
- Reserve Bank of Australia, 2020. Statement on Monetary Policy – May 2020. [Online] Available at: https://www.rba.gov.au/publications/smp/2020/may/international-economic-conditions.html [Accessed 1 June 2020].
- Reserve Bank of Australia, 2020. Supporting the Economy and Financial System in Response to COVID-19. [Online] Available at: https://www.rba.gov.au/covid-19/ [Accessed 2 June 2020].
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