Commentary based on:
• .id blog from Urban Economist, Rob Hall, discussing the work that .id and NIEIR (National Institute of Economic and Industry Research) are currently undertaking to model the impacts of COVID-19 on local and regional economies across Australia
• Webinar held on 19th April to share the early results of that work, and the framework we can use to understand how the economic effects of the pandemic may affect our region.
The .id economics team have been working with NIEIR to develop a COVID-19 Outlook tool to show economic and industry impacts at the LGA level. The model estimates the direct impacts of COVID-19 on local economies, taking into account the Federal health and economic measures that have been introduced to date. The COVID-19 Outlook tool, (expected to be released in mid-May), will initially focus on the June Quarter 2020 impacts of the pandemic, but is expected to include an outlook over the following 8 quarters.
COVID19 will have a substantial negative impact on economic activity in 2020, with the recovery effort lasting for many years. Recovery depends on health outcomes (management and development of a vaccine) and the effectiveness of economic policy. The economy is in uncharted territory – nobody knows for sure how the economic measures will work.
Based on preliminary forecasts from NIEIR, the estimate is that National Gross Product in the June quarter will fall by around 16.6%. Employment is forecast to fall by around 1.5 million (assuming job keeper recipients remain employed) or around 2.9 million (if jobkeeper recipients become unemployed).
Modelling by NIEIR shows that COVID-19 will impact some sectors more than others:
- Falls in economic activity with our trading partners, which will be on average around 5% for the 2020 calendar year, will heavily impact Australian exports over the next nine (or more) months.
- Economic activity related to tourism, accommodation, entertainment, arts and restaurants will fall significantly.
- Business services sector (financial, accounting, cleaning, …) will be in less demand
- Spending on food retailing, health and telecommunications is expected to increase.
Impacts at the Regional and Local Government Area level are still being reviewed and assessed by .id.
Regions will be impacted to different degrees, depending on the region’s role and function, service sector provision, export reliance, sectoral mix and exposure to the virus. Some perspectives include;
- Regions reliant on tourism and hospitality are particularly vulnerable. Looking forward, it is likely that domestic tourism may pick up at the back end of 2020, but international tourism may experience a slower recovery.
- Regions which are overly dependent on population-serving sectors (which are generally low-income based) will be vulnerable to falling household expenditure.
- Regions may be less vulnerable if they have a high share of public sector and health workers.
- Regions with a comparatively high level of exports (e.g. agricultural, manufacturing and tertiary education), business services and businesses reliant on high activity levels from workers, tourists and residents will be vulnerable.
- Many regions will experience mixed economic impacts, which highlights the importance of regional economic diversity.
The long-term damage to the economy from the impact of COVID-19 may include:
- export markets and supply chains have been disrupted and may not be re-established
- wealth impacts (lower asset values, increased debt) by the household sector weakening long-run spending capacity
- increased government debt requiring higher tax rates and lower expenditure
- increased debt by businesses reducing investment
- lower population growth (especially from lower overseas migration), with adverse impacts for housing activity and the economy
- Peter Brain, Director of NIEIR, has also pointed out that it is possible, that the recovery may trigger a financial crisis, and potentially a longer-term depression.
Implications for local economic development
Local government is focused on what we can do to help our economies rebound from the economic shock of COVID-19.
In May2020 .id are releasing a COVID-19 Outlook tool to show economic and industry impacts at the LGA level. This tool will provide;
- a ‘pre-Covid’ baseline of economic conditions in our LGA/region so that we understand the drivers, risks and weaknesses of our local economy.
- an understanding of which industries and sectors are most impacted
- provide information to help local government develop and track targeted recovery actions
More detailed LGA modelling (taking into account local support & stimulus measures) is offered by .id as a consultancy.
To view the .id data for yourself, go to; http://economy.id.com.au/northern-tasmania