Australia’s path to economic recovery after COVID-19

^{Share this article}

COVID-19 will cost Australia $279 billion in national income, and no further action costs $127 billion more

To understand the trade-offs and relationships between the forces of change and economic outcomes, a consistent set of COVID-19-related assumptions across scenarios was used.

In the short term, there is an alphabet of possible economic paths facing Australia; these recovery trajectories are often described as being U, V, W and L shaped. Ultimately the management phase’s ‘exit point’ will be determined by how long and what type of economic activities need to be restricted and the spread of the virus. To provide comparable outcomes for our post-COVID-19 economic scenarios, the scenarios assume a consistent exit path, namely:

the Australian economy will formally enter recession in Q2 2020
a second wave of cases, with the same or greater severity than first, does not occur
restrictions are progressively loosened from the middle of 2020 and are substantially relaxed by summer, except restrictions on international travel
public health and survival packages will prevent substantial, structural economic damage
a return to growth in Q3 2020 and a bounceback from there, without the need for future ‘survival’ packages.

This ‘best case’ exit path sees a recovery to pre-COVID-19 GDP levels in little over two years (see Figure 2). In this period, lost national income of $279 billion is largely fixed and determined by our assumptions on the shutdown in response to COVID-19. However, without conscious policy changes, the nation could expect to lose another $127 billion from 2022 to 2030, taking the total COVID-19 losses to $406 billion.¹

Figure 2: Real GDP, 2018-2024 ($2019-20 billion)

Policymakers face the challenge of minimising this cost and impact to citizens, while industry leaders are tasked with growing businesses in this smaller, divergent economy.

Post-COVID-19 economic scenarios

After the management phase, from 2021 onwards, each scenario is a distinct combination of plausible industry and government positions in response to the forces of change.

Decision-makers economy-wide, face difficult trade-offs impacting growth, productivity, living standards, government intervention, risk appetite, digital investment, security, nationalism, international trade and more. The scenarios deliberately span the broad spectrum of choice facing Australian governments, businesses and communities. These scenarios are:

Fortress Australia, characterised by nation-first decisions and higher levels of federal and/or state intervention in industry.
Enterprise Australia, where smarter regulation and digitisation enables private industry to grow Australia out of the crisis.

The first scenario reflects the desire for insurance against future problems like those that the COVID-19 pandemic has exposed. Similar insurance-driven policy responses emerge from other major crises:

The millenium drought (1997-2010): some Australian state governments invested billions of dollars in building excess capacity into our system through desalination, effectively vowing to never again be exposed to the risk of their capital cities running out of water.
SARS outbreak (2003): Singapore invested heavily in building excess capacity in terms of infrastructure (e.g. a 330-bed purpose-built infectious disease management facility) and stockpiles of personal protective equipment (PPE), critical medications and vaccines for up to six months.²

The second scenario reflects a ‘go for growth’ mentality that does not seek to strongly adopt the insurance mentality of the first scenario

_{¹ All values are reported as net present values, in real $2019-20, discounted at 1 per cent. This discount rate was chosen as it reflects current yields on 10-year bonds, an expectation that a low cash rate will persist over the forecast period, and a lack of binding resource constraints}

_{² Ray Junhao Lin, Tau Hong Lee and David Chien Boon Lye (2020), ‘From SARS to COVID-19: the Singapore journey’ Medical Journal of Australia, 6 April}

Download the Australia Rebooted report

_{This report is not related to the Australian Manufacturing Workers Union (AMWU) pre-COVID-19 report of March 2019 titled 'Australia Rebooted' and PwC is not affiliated with the AMWU.}