“The best way to predict a future is to create it.” Abraham Lincoln
What of SA’s economic future in a world changed unimaginably by COVID-19? We at Macks Advisory can postulate, pontificate and predict to our heart’s content, but like everyone else, even after the most careful assessment of opportunities versus risks, we simply can’t make a prediction worth the effort. That doesn’t mean we should despair of working towards an answer, for as Abraham Lincoln said: “The best way to predict your future is to create it.”
True, our reading of the June international Monetary Fund (IMF) World Economic Outlook was somewhat short of a cheerful experience. Yet Deloitte Access Economics’ latest review of SA’s immediate future gives readers reasonable cause for optimism on two fronts - one, our State is already developing a momentum towards an essentially positive outlook and two, it appears likely to go forward as well as any other State in a country that has handled the corona virus crisis better than almost any other country in the world.
Substantially devoted to urging business operators to create a worthwhile future for themselves and their employees, our June newsletter featured two articles, “Small business to self-help – making the most of the COVID-19 experience”, and “Capitalising on human capital – a 2020 priority.”
It will of course be an uphill battle.
What are businesses actually facing?
The IMF, even with the vast resources it can bring to bear in trying to determine what businesses are actually facing in the next 18 months or so, seems to be overwhelmed by uncertainties.
Since April it has downgraded global economic growth from minus 3% to minus 4.9%, yet next year’s growth is forecast at 5.4%, expectation therefore being that 2021 global output will slightly exceed 2019’s. Yet in next year’s fourth quarter the gross domestic product of “high income countries” would, according to the IMF, still be below the first quarter of 2019, and output would also be about 5% below levels indicated by pre-COVID-19 trends.
But it would seem the people at the IMF, having crunched all these numbers, accords them little if any worth by saying they’re likely to be invalidated by a stack of unknowns - how long the pandemic lasts, what additional lockdowns will be necessary in which countries, the extent of voluntary social distancing, the severity of new safety regulations, the ability of displaced workers to secure employment, the longer-term impact of business closures and unemployment, the extent of reconfiguration of supply chains, the likely damage of financial intermediation, and the extent of further dislocation of financial markets. That’s a lot of uncertainty.
However, there is nothing uncertain about the IMF’s warning that as lockdowns end and economies recover, it is essential governments shift policies towards promoting recovery and vital to avoid the mistakes post GFC. From about 2008 too many countries were tightening monetary policies.
SA is on message
While SA has suffered considerably because of COVID-19, its pain, according to Deloitte Access Economics, is “less pain than other States on average” and the makeup of our economy works in our favour.
While SA’s economy took a hit, as did other states’ when international borders were closed, the resulting loss of tourists, immigrants, and foreign students had comparatively less economic impact because “the State isn’t strong in these areas anyway”.
However, because of the comparatively large number of people employed in SA’s tourism sector and industries significantly dependent upon it, the State’s unemployment rate at 7.2% remains the nation’s highest, although there’s every indication in the aftermath of COVID-19 SA’s jobs growth will compare very favourably with other States.
SA’s submarine, naval shipbuilding and defence projects are the biggest in Australia’s history. Lot 14, formerly the site of the Royal Adelaide Hospital, is now the headquarters of the Australian Space Agency together with a hub of exciting start-ups.
All this is in line with the IMF’s view that economies post COVID-19 “will need to take advantage of today’s technological revolution”.
Adelaide’s housing market reached a record high in May and continues to hold up well. Business analyst’s see this as a vote of confidence in SA’s future.
Positives for creating the future
The Grattan Institute, Australia’s public policy think tank, claims Federal and State Governments need to apply a further $70bn to $90bn in spending stimulus over the next couple of years to avoid long-term unemployment “scarring” and to boost the economy.
Encouraging steps in this direction are the newly announced $2bn JobTrainer Federal Government scheme (to which State Governments will be asked to contribute funding packages) that will train people and help them find jobs, and a $1.5bn extension of the tradie wage subsidy program to help keep apprentices in work.
JobTrainer is expected to provide about 340,700 new training places for school leavers and people who are now jobless. In many instances both jobs and skills will be different after the corona virus crisis than before it.
Businesses will be paid up to $7,000 a quarter for each apprentice kept on their books. Medium size companies with up to 199 employees are now included in a support program expected to support 180,000 jobs. Previously it had been limited to small businesses.
Towards creating a future
That $70bn to $90bn the Grattan Institute says the economy needs injected into it by Governments between now and 2022 in order to assure sustainable economic growth in the aftermath of current chaos, would have the effect of pushing down unemployment from the Reserve Bank of Australia’s (RBA’s) prediction of 6.5% in June of that year to “full employment” of 5%.
Such a fiscal stimulus is the equivalent of 3% to 4% of GDP and would be able to put an extra 430,000 to 510,000 Australians back in work by that time.
Business analysts say Governments’ extra debt (both Federal and State Governments support the stimulus packages) will be paid for by an economy thus enabled to grow faster - to an extent that increased taxes and spending cuts may not be necessary.
Government assistance packages due to be suspended in September will now be extended and designed to provide for industry sectors most likely to be most severely disadvantaged by continuing COVID-19 restrictions.
The Grattan Institute wants to see future payments under JobKeeper to be provided in advance rather than arrears to businesses. By the time they’re eligible for payments it’s been too late for many businesses. The Institute also believes payments should be gradually reduced as a business’s recovery advances.
Australia’s performance in dealing with the savage impacts of the corona virus pandemic has been remarkably good, and continuing government assistance to businesses is unmatched globally. Surely business owners here have been given substantial encouragement and every good reason to have a serious crack at meeting Abe Lincoln’s injunction not to worry about predictions but to create their own future.
