In the midst of the greatest economic crisis since the Great Depression, Deloitte Access Economics has considered a series of scenarios – of plausible and possible futures – to understand the signposts and transmission mechanisms which can guide decision-making.
Presenting three possible scenarios for Australia’s economic recovery from COVID-19, Dr Pradeep Philip, Head of Deloitte Access Economics said: “We should design our recovery with reform at its centre, to build a better and fairer economy and country, because productivity is no accident. Australia can, and must do, better than just return to normal.
“The key indicator for recovery is the virus: a lower infection-rate is better for the economy and for the Budget. But our actions on the economy and how the global economy recovers are vital for growth and jobs in Australia.
“Our scenarios reveal the sensitivity of recovery to the staged pathway to recovery which is slower than the speed of the fall; and the risk of the crisis in confidence and investment, which we must work hard to avoid.
“The pandemic presents a ‘once-in-a-generation’ opportunity to reshape our economy and come back stronger via a series of economic reforms.”
Deloitte’s research focuses on three forward-looking scenarios and timeframes: from the future we hope for, to the future we want to avoid, to our view of the future we should prepare for. The scenarios forecast economic impacts and identifies opportunities for economic and social reform.
Three scenarios based on three key uncertainties
Kristian Kolding, Deloitte Access Economics Lead Partner, Macroeconomic Forecasting and Policy, said: “In Australia’s recovery from the pandemic, we encourage governments, business and communities to stretch their thinking, challenge conventional wisdom, identify new opportunities or hidden risks, and make better decisions that will make our country a better place in the future.
“While Australia’s recovery remains in its early stages, there are clear opportunities. We may need to shift our thinking from a post-COVID world to a world where we learn to live with the virus, and be prepared for, and manage expectations that a recovery may not be smooth or comfortable. But we also shouldn’t waste this crisis and ensure Australia can prosper once the health and economic challenges abate.
“Reforming the economy to boost productivity and growth will get us back to normal quicker and allow us to do better than normal. That’s the right and responsible thing to do.”
- Necessity for Economic reforms
Australia’s economic growth was already sluggish at the end of 2019, and productivity performance was anaemic. The insight from the scenarios is that we will not get back to normal quickly; and only reforms can speed this up. Our biggest concerns lie in the crisis in investment and the importance of returning population growth, including immigration, to levels which can drive economic growth and jobs. Good, effective, policy reforms and implementation means we can lift our ambitions to do better than just return to normal. Building a modern, equitable and sustainable economy built on productivity, facilitating new business formation, having a compatible and incentivising taxation system, and spurring-on entrepreneurship and innovation is good for the economy, for society, for business, for workers, and for communities. New models for co-operative Federalism, as made clear through the operation of the National Government though this crisis, will be important to drive long-term reforms, and their effective implementation, for the betterment of Australia.
- Digitisation of economy
The pandemic has accelerated the forces of disruption which were already present pre COVID-19. Recovery will need to accelerate the uptake of digital technology, and advances in analytics and artificial intelligence, to modernise and improve our businesses, workplaces, and the efficiency of government services. This will require clear strategic intent on the part of business and governments, clear investment mandates, and reforms to operating models and management of operations and cultural change. A clear focus on workforce reforms, mainly in upskilling workers, will be critical to success.
- Investment and Infrastructure reforms
Australia’s investment performance is at a cross-roads. The economic environment provides us the opportunity to address crucial long-term infrastructure and investment needs, lower the cost of transactions and transport, improve government and business service delivery, and thereby create more jobs and support population growth. Economic gains can be made with a renewed focus on national infrastructure, as well as the infrastructure needs of regional and suburban Australia.
- Reduce inefficiency and enhance competition
The pandemic caused temporary easing of some restrictions to help struggling businesses. As the crisis abates, Australia should continue to push through with initiatives that help further reduce inefficiency, such as further cuts in red tape and deregulation for business, and replace inefficient taxes that are holding back the economy. As we emerge from COVID-19, the competitive landscape is likely to have changed across the economy, and regulation reforms can be a positive for economic growth, a positive for consumer protections, and an incentive for modernisation of both our economy and society.
- Modernising the economy to build a more sustainable future
COVID or no COVID, the risks and opportunities of climate-change loom large. An insight from thinking about scenarios is the need to navigate future risks and seize emerging opportunities. In light of the Government’s Technology Investment Roadmap and the critical activities of the States and Territories, Australia has great opportunities to lead the way to become a world-leading energy powerhouse, grow a world-leading green hydrogen industry, powered by our rapidly growing renewable energy sector. In reducing emissions and decarbonising the economy, Australia can grow local jobs and economic opportunities. Investing in, re-skilling and re-tooling the manufacturing sector can reduce reliance on global supply chains for essential items and, importantly, renew a focus on competitive strength and value in our economy. Doing nothing is not costless when it comes to climate change and the performance of our economy will deteriorate in the absence of reforms.
- Health and Social Care
Our recovery from the pandemic will not see us free from the virus; rather we may have to learn to live with it for the foreseeable future. Given that our near-term future will see us plan for recovery and growth based on economic opportunity alongside an assessment of health risks, reforming our health and social care systems are a must. New models of care, such as tele-health and virtual hospitals, the role of technology in care provision, and the way our system works together are important areas for fundamental reform.
- Urban density and liveable cities
Smart immigration policy can help promote economic growth and jobs, and Australia can build more liveable cities and neighbourhoods connected by more active modes of transport infrastructure. The scenarios provide insight into how key sectors of the economy depend on a decent rate of population, mainly immigration growth. A focus on the skills, innovation and deep cultural-links migrants bring will be important to underpin demand and supply in our economy for the future.
- Reskilling the workforce – now and future
Insight from the scenarios confirms that in crises, unemployment goes up quickly but comes down slowly. And in the process, those who lose their jobs can easily drop out of the labour force forever or move in and out of employment in ways which are inefficient for the economy and unfulfilling for their lives. Structural change in the economy, as well as seizing opportunities for a brighter future means that reskilling the workforce is a must-do. Without this, we will not achieve our growth potential or create the jobs we need to build an equitable and optimal growth-path for the economy.