Perhaps the best news to come out of 2020 was the creation of two approved vaccines for the COVID-19 virus, which has wrecked economies, nations’ budgets and consumer confidence across the world’s 7.8 billion citizens.
Ironically, it has been one of the least deadly pandemics, accounting for 2.6% of the world’s 57 million deaths in 2020. On average, over recent decades, we have usually lost more people—between 6-8% of all deaths—through respiratory diseases (flu strains, coronaviruses, pneumonia, et al.). As with COVID-19, most of these deaths have occurred among the population aged 65 and older. However, in the USA, around 10% of total deaths occurred due to COVID-19 in 2020, with its then head-of-state having treated the vicious and virulent disease with disdain. As a consequence, the death rate has continued into the new year.
As has been typical over the last 100 years or more, Australia emerged largely unscathed in 2020, with a tiny 0.6% (<1000) of all deaths being due to the virus. This lower death rate can be attributed to Australia’s location in the Southern Hemisphere, its status as an island (therefore preventing visitors), its high standard-of-living and its world-class health industry. However, we were on a steep learning curve regarding tracing capabilities, and measures such as quarantines, curfews, business shutdowns, and state and regional border closures.
Occasional reference has been made to the dreaded Spanish Flu, which spread in 1918-19 (and which lingered for a decade), leading to over 50 million deaths. These deaths accounted for around 2.6% of the world’s then population. Of these deaths, only 12,000 occurred in Australia. Our loss was just 0.2% of our then population, or less than a tenth of the world death rate from the Spanish Flu.
The COVID-19 pandemic has killed 0.023% of the world’s 7.85 billion population in 2020. However, in Australia, the rate has been lower at 0.0036% of our 25.5 million population, or around one-sixth of the global fatality rate.
All that perspective seems to have been largely unknown in 2020.
So, we reacted like all nations, had a recession, tried preventative or limiting measures, ran a significant deficit, and were thankful that vaccines were created in record time. These vaccines will likely make 2021 a much more promising year compared with the one just gone. However, the overall response to the pandemic has still left red ink everywhere across the world.
We will now look at four indicators across nations that account for three-quarters of the world’s GDP:
- economic growth,
- government budget balances,
- interest rates,
- and unemployment.
These indicators showed Australia’s position on various economic ‘ladders’ as 2020 came to a close.
The economic impact
The first chart below is reminiscent of the F2009 year when red ink was everywhere due to the GFC, but Australia still escaped a recession. So, we have included the effects of the GFC by way of comparison.
Yes, 2020 was more devastating, and this time Australia did not escape a recession. We suffered a 0.5% annual reduction in our normal GDP growth for a decade, and could lose another 0.5% p.a. through to 2030.
The budget balance impact
The reasons for the slowdown in Australia’s economy (and other economies in the Western world) due to the GFC were deficit spending, debt build-up, and a lack of reform. It looks like the same factors have been responsible again: deficits, massive debt build-up, and no reform zeal. Again, the red ink is everywhere, and this time it’s across all leading economies, as shown below.
The build-up of household debt, now at 120% of GDP, has heightened the challenge this time around. Add this to the government (national) debt and corporate debt, and we are now well over 200% of GDP, and heading for over 250% of GDP. This situation is called mortgaging our descendants’ (and our own) future, and makes far-sighted reforms to taxation, the labour market, our ecology footprint and our parliament (to obviate the blockage created by the undemocratically elected Senate) far more urgent than they were at the end of the GFC.
However, we could spare a thought for countries such as the UK, Brazil, the USA, Canada, and the other five nations with budget balances in double-digit negative territory!
The interest rates impact
The saving grace to our debt build-up, both household (mortgage) and government, is low interest rates. Contrary to conventional wisdom, however, we have not reached record-low 10-year bond rates.
At least not in real terms. After deducting inflation, we have had 32 negative rates since 1860!
That said, the chart below puts Australia in among the lower bond rates on the ladder, which buys us quite a few years to get our act together.
The unemployment impact
The last indicator is unemployment, with perspective provided in the chart below.
Australia’s unemployment rate sits below the big nations’ average. However, this position is disguised by welfare—not disputed—in the forms of the JobKeeper Payment scheme and other support mechanisms (insolvency exemptions, and subsidies and support to selected industries and corporations, et al.). We are told we will get back to full employment within five years, but hopefully it will be sooner.
The notion of work is changing, as it had been before the COVID-19 pandemic. Changes include greater self-reliance via new business start-ups (including the gig economy, which is going through birth-pains); working partially, or fully, from home; earning a living via outputs (volumes of goods or services) rather than inputs (hours of work and historical protocols); and embracing the Digital Age in work and telecommunications.
So?
Perhaps the lesson that will eventually be learned via cost-and-benefit analytics is whether responses to pandemics such as COVID-19 need to be radically altered in future. As mentioned previously, COVID-19–virulent, mutational and scary though the virus is—has been one of the mildest pandemics in terms of deaths in a very long time, causing less than half the average annual number of respirational deaths in recent decades. However, we have spent a fortune on the response.
How many GFCs and pandemics can we afford to deal with as we have been doing, travelling down this already-extraordinary century, which is just two decades in? We need to find better solutions.
We need to be better prepared, and everybody knows that.
We must also provide a clearer perspective to citizens who have been told that COVID-19 has no precedent in terms of fatalities and devastation—a gross distortion.
But, in the interim, we can happily say goodbye 2020, and don’t come back! And we can be grateful that we seem to have vaccines (made available in record times), which may control the beast that got out of the bottle, or lab, or wherever it came from.
