The latest data measuring public sentiment, which basically tracks how comfortable we feel about investing and making financial decisions, makes for stark reading. The Westpac-Melbourne Institute’s index of consumer confidence took a plunge in August bringing the overall level back down to the lows hit when the pandemic first began, forcing almost the entire country into lockdown.
Westpac chief economist Bill Evans describes low NSW and Queensland confidence as being dragged down by about the latest Victorian lockdowns, but says it “seems disproportionate” and potentially “overblown”.
“This emphasises the fear of the unknown,” he says. “Consumer sentiment will be hostage to virus outcomes for some time yet.”
Regardless of whether the country is overreacting this remains a substantial concern. How you feel about the future affects how you behave right now, which has the power to help or hinder the economic recovery.
Simply put, businesses need to have enough confidence to invest and hire staff and consumers need the confidence to spend rather than save.
This is hope in action. But returning this intangible feeling to the public is a tall order when it’s common knowledge recessions leave long-lasting scars on our finances and our children’s futures.
The Grattan Institute is already predicting a longer recovery from this recession than the bounce back from the 1990s and 1980s downturns. The think tank’s researchers predict an even slower recovery than the sluggish improvements in the US after the Global Financial Crisis (when it took five years to reduce the unemployment rate from 10 per cent to 5.7 per cent). Without stronger action now, unemployment in Australia could stay above 6 per cent for the next five years, the researchers warn.
So, what can be done to restore hope? The brightest light so far for public confidence has been the positive signs of a possible COVID-19 vaccine. Yet even this is an emotional rollercoaster, with the trials of the leading candidate put on hold last week to investigate a participant’s adverse reaction.
That’s why the stakes get very high on October 6 – budget night – for the Morrison government. Designing a politically-palatable budget is hard enough at the best of times but it’s even tougher during a recession when every dollar spent will be under scrutiny and the public needs a vision they can hold onto.
Frydenberg and Morrison have to present us with the best plan possible to improve the future. It has to be bold and it has to be believable.
The government’s ad nauseam reminders it is focusing its attention on jobs growth might sound like a broken record but it is actually part of the solution. Some of how we feel about the position we’re in will undoubtedly be improved by a boost to the jobless rate, not to mention that getting shovels into the ground and ribbons cut on new projects is a highly visible adrenaline shot to the nation.
But there is definitely room for improvement in presenting a clear direction for where we are heading.
It’s not going to be an easy road for a government which launched its own range of merchandise in 2019 with the slogan “Back in Black” ahead of an expected budget surplus. It’s also not going to be an easy road for the public when we eventually emerge from social distancing, lockdowns and restrictions and take stock.
Morrison and Frydenberg will need to show new levels of courage and grit. They are going to need to spend – even more than has been so far – and to deal with the deficit that comes with it.
For his part, Opposition Leader Anthony Albanese has already put his stake in the ground on Wednesday about his vision for a recovery for regional Australia from what he has dubbed the “Morrison recession”. He sees a future where more people relocate out of CBDs and work from home and promises an injection of funds for education institutions in the country will be one of the promises he takes to the next election. He also wants a Brisbane to Melbourne high-speed rail line.
The Grattan Institute recently revised the amount of fiscal stimulus it thinks is needed to between $100 billion and $120 billion, up from $70 billion to $90 billion estimated in June, and estimate this could shave 2 per cent off the unemployment rate by 2022 to about 5 per cent.
Deloitte Access Economics partner Chris Richardson told the National Press Club in Canberra last week that the mounting debt level would normally be concerning but this was no ordinary situation. He is a proponent of higher spending to get us all to the other side of the recession and thinks the days of being focused on surpluses are over.
“Although debt is going up a lot, interest rates have gone down even more,” Richardson says. “And they’re set to stay down as the Reserve Bank has promised us for at least three years.”
Clearly, no one wants this recession to go on for longer than it has to. We’re just waiting for the government to find hope at the bottom of the box.
Ross Gittins is on leave.
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Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.