Australia, a Covid-19 “gold star” ... for the moment

Australia’s record with Covid-19

By any measure, Australia’s management of Covid-19 has been excellent.

Australia’s total cases number 6779, while active cases are only 895, as 5747 people have already recovered from Covid-19. Most regrettably, 93 people have died from Covid-19. But this is a much lower number of deaths than in comparable countries like Canada with 3499 deaths, the Netherlands (4909), Sweden (2653), Denmark (460), Norway (210), and Finland (218).

New cases peaked at 424 a day on 24 March 2020. Over the past two weeks, there have only been around 10-20 cases per day. And many of these new cases have been in specific clusters around aged-care homes.

The influential Washington-based Brookings Institution has awarded Australia a gold star for its handling of the pandemic so far. It says that, along with New Zealand, no country has been more successful at saving lives by suppressing the virus and at saving livelihoods by suppressing unemployment.

In reality, Australian has been slower to tackle the Covid-19 pandemic than success stories like Taiwan, South Korea and Hong Kong. But it has nevertheless reacted decisively, effectively and successfully.

The objective has been to control Covid-19, rather than eliminating it, as New Zealand has sought to do. In particular, the government’s objective has been to “flatten the curve” so that the health system is not overwhelmed, and to enable health capacity to gear up.

How has Australia achieved its impressive results?

An early travel ban against China

The first decisive act was to implement as from 1 February 2020 a travel ban on travellers from China. This was done in defiance of the advice of the World Health Organisation, which criticised Australia. Predictably, this travel ban also provoked criticism from the Chinese government.

Travel restrictions were progressively widened such that borders are now closed to all non-citizens and non-residents. Australian citizens are now banned from overseas travel. Interstate travel within Australia has also been banned. And now that most Australians are required to stay at home, virtually all travel is banned.

International travel bans are having a major effect on the economy.

One important impact is on the arrival of international students, who represent Australia’s third biggest source of export revenue, after iron ore and coal. In 2017-18, education export revenues amounted to $32,434 billion, or 8.0 percent of total exports. Last year, Australia was home to some 800,000 international students, 30 percent of whom came from China. (It has been reported that more than 500,000 international students were already in Australia before international travel restrictions came into force.)

The arrival of international tourists, Australia’s fifth biggest source of export revenue, has also stopped. In 2017-18, export revenues from international tourism amounted to $21,580 billion, or 5.4 per cent of total exports. There were 8.5 million international visitors to Australia in 2018, 17 percent of whom came from China.

International immigration, an important driver of Australia’s economic growth, has also been put on hold. In the year ending 30 September 2019, net overseas migration was 232,100 people, which contributed 62.5% to Australia's annual population growth. In 2016-17, the four most important source countries for Australia’s immigrants were India, China, UK and the Philippines.

Social distancing and economic shutdown

Strict “social distancing” has been a key policy for preventing the spread of Covid-19. The basic basic requirement is for people to stay at home, except for essential activities, exercise and work, and to keep a distance of 1.5 metres from each other. Large numbers are now working from home.

There has been a shutdown of some parts of the economy, notably the hospitality, tourism and retail sectors. But many parts of the economy are still operating fairly normally, notably the resources and agricultural sectors. There are also reports of substantial air cargo exports, as excess supplies from the domestic economy are diverted to international markets.

New Zealand’s lockdown was more stringent than Australia’s (“Stage 4”), as its government has sought the elimination of Covid-19, rather than containment. Nevertheless, New Zealand’s results have been very similar to Australia’s, with New Zealand’s 1479 cases and 19 deaths.

Notwithstanding Australia’s successful management of Covid-19, there is still a debate as to whether the lockdown was too hard and thus inflicted too much damage on the economy.

As could be expected, there have also been blunders, the most spectacular of which has been the mishandling of some of the many cruise ships in Australian waters.

Effect on the economy

The effect of Covid-19 on Australia’s economy will be massive. And it comes on top of Australia’s recent bushfires and floods. So it is a triple-whammy, as people who are still recovering from bushfires and floods are now being hit by Covid-19.

The International Monetary Fund forecasts that Australia’s GDP will fall by 6.7 percent in 2020, and then rebound by 6.1 per cent 2021. These forecasts are regarded by many as optimistic. Some market analysts are talking of falls in GDP 20-30 percent in the second quarter of 2020 (April- June). The market capitalisation of the Australian Stock Exchange has dropped by one-third or almost $500 billion since the end of 2019.

The Australian dollar has bounced around a lot, but it has also continued its weakness of recent times. This could be a positive for the economy, as it could stimulate exports and restrain imports. Indeed, an important part of the flexibility of the Australian economy has been the floating exchange rate.

The IMF is predicting unemployment of 7.6 percent in 2020 and 8.9 percent in 2021. But unemployment data do not reveal the reality of the labour market. Many people have accepted cuts in their hours worked, but are still counted as employed. Some have accepted pay cuts. Some unemployed professionals have accepted lower skilled jobs. And many people on government support programmes are not counted as unemployed in the official statistics.

One very positive trend has been the acceleration in the digitalisation of the economy and society in response to the lockdown. E-commerce, online learning, tele-working, tele-conferences and online meet-ups are booming, as are digital auctions for seafood, agricultural products and real estate. Much of these trends will likely remain after Covid-19 has passed, thereby providing a permanent boost to productivity.

Government's stimulus package

Australia’s right-wing government has discovered socialism, as it has launched a massive stimulus package amounting to about $A320 billion or 16.4 percent of GDP.

Australia’s government debt going into the Covid-19 crisis only represented 66 per cent of GDP. So it was much better positioned to provide economic stimulus than highly indebted countries like Japan, US or China. But Australia’s government debt will increase sharply, and take many years to pay down.

The government stimulus includes three main items: (i) supporting individuals and households; (ii) support for businesses; and (iii) supporting the flow of credit.

The Australian government’s response to Covid-19, both economic and health dimensions, has been formulated in an amazing spirit of national cooperation. A “national cabinet” has been formed, with the prime minister and the leaders of states and territories jointly leading the national response to the pandemic. The national opposition has cooperated with the government in passing legislation. And the scientific and medical community has also played a key role in policy formulation -- in sharp contrast to how the recent bushfires were handled.

But the government stimulus package is scheduled to finish in September. And it is not clear what happens next.

Australian Prime Minister Scott Morrison, who was widely criticised for his perceived mismanagement of the bushfire crisis, has seen a surge in his personal approval. According to one poll, his approval climbed from 41% to 59% with support from voters across the political spectrum. But the government’s overall popularity has not improved, with the government and opposition locked at 50-50.

Exit strategy from anti-Covid-19 policies

Pressure has been building up to exit from the anti-Covid-19 policies for several reasons:

-- health system has been coping very well with Covid-19 demands, as health care capacity has been ramped up. Indeed, there is now spare capacity in the health system, such that the ban on elective surgery has recently been lifted.
-- excellent results justify relaxation of social restrictions;
-- public frustration with social lockdown;
-- concerns about mental health impact of lockdown, including domestic violence; and
-- economic and employment costs.

Three of Australia’s states (New South Wales, Western Australia and Queensland) have just announced some relaxation of social restrictions. The other states and two territories will follow in due course.

Over the coming months there will likely be a continued relaxation of restrictions, and a gradual return to normal for the domestic economy and society. Easing restrictions will likely lead to further Covid-19 infections. But it is likely that the healthcare system can cope.

The government will be alert to the risk of a second wave of Covid-19 infections. Indeed, there is always a chance that Australia could fall into the Singapore trap. Thousands upon thousands of students (especially international students), and young international “backpackers” live in dormitory-style accommodation where 4 to 6 or even more people are crammed into a bedroom, an ideal transmission ground for Covid-19.

While domestic restrictions are being eased, most international travel may not open again until next year, which means continued difficulties for the international education and tourism sectors.

Indeed, in a 192-page research report, Australia’s Group of Eight universities has urged the Australian government to keep Australia’s international border closed to international visitors for at least another six months. It says foreigners should only be allowed to enter if their countries have been free from Covid-19 infections for at least four weeks and have border controls that are “identical to Australia’s and stringently enforced” ones.

When Australia’s international borders do reopen, it will likely be in a staggered manner, with initial openings being made with reliable partners like New Zealand and Japan.

One instrument of the exit strategy is a Covid App which aims to identify those exposed to COVID-19. Downloading the app is voluntary and many have raised privacy concerns. But overall, the public response has been very positive, as some 3 million people have downloaded the App.

Australia in a post Covid-19 world.

There is much debate about Australia’s future in a post Covid19 world.

On the right wing side of politics, there is talk of a “snap-back”, meaning that we can go back to business-as-usual very quickly. Big business is arguing for tax cuts, deregulation and industrial relations reform to help restart the economy. The right-wing government has said that it will not raise taxes to pay for the increased debt.

With Australia’s borders closed for some time at least, and the risk of rising protectionism in the world, the likelihood of a snapback is highly unlikely.

On the left of politics, there is extreme doubt in a snap-back particularly for jobs. The evidence shows that employment only recovers slowly after a crisis. And there is fear of what happens when government stimulus is withdrawn.

There is also a movement pushing for a “green stimulus” for the economy in light of Australia’s recent tragic bushfires, which many see as being at least in part caused by global warming.

In charting Australia’s post Covid-19 future, it is important to understand the starting point. The government proudly highlights the country’s almost 30 year run of economic growth. But economic analysts point to some weak underlying trends, namely, low productivity growth, poor innovation performance, weak business investment, underemployment and precarious employment. As Australia has been surfing on China’s wave of economic growth for many years, it has avoided tackling many difficult reform issues.

In short, Australia faces many complex challenges in charting a post Covid-19 future.

Ensuring Australia’s economic and health security

One such challenge is managing Australia’s high economic dependence on one market, namely China, and ensuring the security of supply of essential goods and services.

It has long been recognised that Australia is highly dependent on one export market, and that leaves Australia vulnerable to market volatility and also to the weaponisation of trade. This is why the Australian government has made a number of efforts to develop other markets.

One such effort is The India Economic Strategy, an ambitious plan to transform Australia's economic partnership with India out to 2035. Getting the Strategy right will strengthen the resilience of the Australian economy and help realise India's aspirations.

Another initiative is the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), which was signed on 4 March 2019. Building on the benefits of the ASEAN-Australia-New Zealand Free Trade Agreement, IA-CEPA will provide access to Indonesian markets for Australian exporters. Over 99 per cent of Australian goods exports to Indonesia will enter duty free or under significantly improved and preferential arrangements.

A very recent initiative by the government is the establishment of the National COVID-19 Coordination Commission to anticipate and mitigate the economic and social impacts of the global COVID-19 pandemic. One major task of the Commission is working with manufacturers to ensure supply of essential products, such as personal protection equipment, and solve supply chain issues to keep critical goods flowing to Australian communities.

Many companies are acting by themselves to diversify trade. Nufarm is one such company looking at ways to reduce the supply risk posed by China being the sole source of products needed for agricultural production in Australia – such as chemical inputs into herbicides, pesticides and fungicides. The company recently said that shortages had illustrated just how reliant Australian agriculture had become on China – not just as a customer but as a supplier.
These issues have sparked a debate about the possible future role of manufacturing in the Australian economy more generally, now that manufacturing accounts for only 6 percent of GDP. Japan, a very close partner of Australia, has long been a manufacturing powerhouse, and could be an excellent partner for revitalising Australia’s manufacturing sector.

In that regard, one notable inclusion in Japan’s own stimulus package is subsidies of about $2.2 billion to incentivise the return of high value-added supply chains back home from China to Japan, and to diversify lower value-added supply chains to ASEAN countries. Japanese companies could also think of Australia as being a reliable partner for its supply chains.
Australia may also be more cautious in the future about the source of foreign investment. It will not want to see struggling companies being purchased by certain vulture investors. This may create more openings for Japan, which is already a major investor in Australia, and which has an excellent reputation as an investor with a long-term perspective.

It will be important for all these initiatives to not lead to protectionism. Australia more than most countries relies on international markets for its prosperity.

Implications for Australia’s prickly relations with China

Australia has the most China-dependent economy of all the G20 economies, with China being Australia’s most important trading partner, and source of international students and tourists. It is also an important source of immigrants.

But according to Geoff Raby, a former Australian Ambassador to China, Australia’s relations with China are at their lowest point since diplomatic relations were established in 1973.

Factors driving this are reports of Chinese interference in Australian politics and society, Australia’s objection to China’s annexation of the South China Sea and the treatment of Uyghurs, and China’s perception of Australia as a US lackey.

The Australian government added fuel to the fire when Foreign Minister Marise Payne called for an independent, international enquiry into the origins and handling of the Covid-19 crisis and the role of the World Health Organisation. This has predictably enraged Beijing.

In an interview with The Australian Financial Review, the Chinese ambassador to Australia Cheng Jingye labelled Prime Minister Scott Morrison's push for an inquiry as "dangerous" and predicted it would fail to gain support among global leaders. He warned the Australian government that its pursuit of a global review into the COVID-19 pandemic could spark a Chinese consumer boycott of students and tourists visiting Australia, as well as sales of popular agricultural exports like wine and beef.

Senator Payne responded that the Australian government rejected "any suggestion that economic coercion is an appropriate response to a call for such an assessment, when what is needed is global cooperation".

When Senator Payne launched this initiative, Australia initially seemed a lone voice. But at the time of writing, the US and some other countries have rallied behind Australia, predictably infuriating China.

Conclusion

All things considered, Australia is sitting on a knife-edge. It has done very well in battling Covid-19. But the case of Singapore with its second wave of infections, shows that you should never be complacent.

Australia’s future will be very complex to manage for many reasons, notably:

-- the challenge of restarting the economy;
-- the issue of opening and then effectively managing our borders;
-- managing its dependency on a China which is not willing to accept any responsibility for Covid-19;
-- helping friends in the Pacific and Southeast Asia, who are also being courted by China; and
-- strengthening partnerships with friends in the Indo-Pacific, like Japan, India and Indonesia.

In the world of today, with the two irresponsible superpowers, Australia must also redouble its efforts with other middle powers, most notably our great friend, Japan.