Economist Jason Murphy explains why Australia could emerge better off than wealthy nations - including NZ - once the coronavirus pandemic has passed.
Congratulations, Australia. You've managed this pandemic OK. Quite well in fact.
We've had very few cases compared to other wealthy countries, and our lockdowns have, in most states, worked beautifully.
The upside is our economy has shrunk a lot less than most other countries, as this next chart shows.
There's only a handful countries who have done better than us: China, South Korea, and a few others. Down the other end of the spectrum are Spain, the UK, France etc. We are outperforming them by miles.
A recession, yes. But not nearly as deep as the rest of the world is getting. We've even done better than NZ so far. Better than Sweden too. And our outlook is much nicer: summer is coming here. But Europe and the USA are sliding into winter with high levels of the virus in the community already. We can dream of a vaccine before next winter, while they can't.
Australia's situation is really quite a sweet spot. Our most recent unemployment numbers were much better than expected and Commonwealth Bank upgraded its GDP forecast for the whole year. We're now likely to see the economy shrink by just 3.3 per cent overall this year.
Australia was already close to being the richest country in the world, as the next graph shows. There are only two really big countries that are wealthier than we are – Germany and the USA.
Australia got rich slowly. We dodged recession for nearly three decades and we gradually grinded up the world rankings. Now, once again, we look like avoiding the worst of things and coming out of this looking better again.
It seems likely the events of 2020 will leave us even closer to the top of the charts.
Macao is the richest country in the world, according to the World Bank's data. The average citizen has almost US$130,000 to play with each year. But it might be knocked off its perch for a while. Not because it mishandled the pandemic. No, it has had only 46 cases. The problem in Macao its whole economy is based on Chinese tourism.
According to The Economist Intelligence Unit, a consulting company, Macao's economy is expected to shrink an astonishing 63% this year. And it was in recession even before the pandemic, ever since China cracked down on rich people gambling there.
A couple of Middle Eastern countries ahead of us in the global standings have been ravaged by viral outbreaks. Qatar has had 123,000 coronavirus cases. That's five times as many cases as Australia, despite having a population the tenth of us. Meanwhile the United Arab Emirates (UAE) has had 87,000 cases, about 3.5 times as many as us, despite a third of the population.
UAE is the country containing the city-monarchies of Dubai and Abu Dhabi. They originally got rich on oil, but they have been trying to diversify. Remember when oil prices briefly went negative in April? That's bad news for those gulf countries.
But the trouble for their economy doesn't stop there. The Emirates airline belongs to Dubai, while the Etihad airline belongs to Abu Dhabi. Their economy has been hit hugely by the fall in travel.
European countries have also been hit hard by the virus. Even though places like Norway have done very well, its economy is interlinked with places like France and the UK that have done rather badly. We may not overtake Ireland and Switzerland but Belgium and Sweden and Germany are likely to ebb in the next few years.
Australia gets a lot of criticism for not having a sophisticated economy. We dig things up, we educate foreigners, and we do real estate. That's the criticism you hear. But it turns out that so long as you do those things well, what's important is avoiding deep recessions. Recessions are where countries' economies go backwards, and they can harm economic wellbeing for a long time. Australia will be living with the effects of 2020 for a long time. But those effects will be much worse in other countries.
We can be pleased that we put together a good group of policies to fight the virus and some powerful plans to help keep the economy from collapsing. The policies the government announces at next month's budget (October 6) will help determine whether we keep grinding ahead, or if we fall behind.
- Jason Murphy is an economist. He is the author of the book Incentivology.