One of Australia’s top economists, Stephen Koukoulas, says that while the measures to counter the spread of Covid-19 have hurt Australia’s economy, there is room to be positive for the economy’s recovery when restrictions lift.
The Managing Director of Market Economics, a former chief economist of CitiBank and a senior economic advisor to Prime Minister Julia Gillard, Mr Koukoulas told Neos Komos that the measures federal and state governments had put in place would help many with recovery.
“We are going thorough difficult economic times, the lockdown is really hurting the economy. The government has put in place policies such as Job Keeper, as well as relaxing tax policies and the banks deferring payments will help many people through the crisis,” said Mr Koukoulas.
“The Australian Reserve Bank’s analysis issued on 21 April shows that there are cautious grounds for optimism that the economy will recover when restrictions are lifted. Interest rates will stay at the very low levels they are currently on until the economy begins to recover. It could months to years before the interest rates go up – their going up would be a good sign that the economy is recovering.”
Last week, the Victorian government released economic projections based on the fact that the current restrictions could last up to six months. According to these figures unemployment could reach 11 per cent by the September quarter; property prices could fall by nine percent by the end of the year and the Gross State Product falling by 14 percent over the same period.
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The economist said that while the figures were bad they were a worst-case scenario that may not be realised.
“Each state is different. The interesting thing is in states like Queensland and West Australia the mining sector remains strong,” he said. “States like Victoria which industries like tourism, education, sport and hospitality industries have gone to zero.”
He said that in seeking a $24.5 billion loan, Victoria was looking to support its economy. Federal packages like Job Keeper and other measures in tax and debt relief were easing the blow.
Mr Koukoulas said that while there seemed to be indications that there would be some relaxation of the lockdown rules by late May, which would have a positive effect on the economy, there was also a risk that the virus could recur if this happened too quickly.
“People staying at home are being careful with their money. This is a time for caution. There is the expectation that house prices will go down and the markets have been down 30 percent over the last two months.
“Only when the markets recover and when the jobs are back, can things ease and that may be three to four months away,” he said.
He said that it was a mistake to allow people access to their superfunds as these were intended to be for retirement.
“It would be especially risky (to withdraw from your super) if you are close to retirement. You would be selling at a low point. It is wise to just hold on right now,” he said.
He said that one possible outcome of the whole experience could be profound psychological change in the way Australians spent their money.
“Household debt in Australia has been high for many years. With this experience perhaps people will be more reluctant to spend or may focus more on paying off their debts.”
“There will be ‘pent- up demand’ when the restrictions will be lifted when people will want to go out and go on holidays but there will also be some rebound as some will be without work when that happens,” he said.
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The hospitality industry was particularly badly hit while the banks and tax pressures have been eased there was still the management of rent, upkeep of premises, suppliers and staff that had be be considered.
“How easy will it be to flick the switch back on again. What will the pressure be when payments have to be resumed?”
Programmes such as JobKeeper were to last for six months. The question is what will happen after that. And Mr Kouukolas has expressed concern over the high levels of debt the recent stimulus packages will place on the Australian economy in the years to come.
“The way things are is hard but the government will now be turning (its attention) to how to manage a transition (from lockdown to normality),” said Mr Koukoulas.
Who is Stephen Koukoulas?
Stephen Koukoulas, known as “The Kouk” is an economist with wide national and global experience that he is able to communicate to a varied audience.
A speaker at Ode Management and Great Expectation he is a popular public speaker on economic issues.
His wide experience, of political economy, policy and financial markets enable Mr Koukoulas to convey economic matters to anyone whether they be from the corporate world or the school classroom.And he combines his knowledge with affability and a ready sense of humour.
Mr Koukoulas is a graduate of the Australian National University. In the late 1980s to early 1990s he worked as an economist in the Commonwealth Treasury on economic forecasting, monetary policy analysis, current economic conditions.
For three years he was global head of research and strategy at TD Securities in London. He spent ten years as senior economist and chief economist at Citibank Australia and as chief strategist for TD Securities in Sydney.
Between 1999 and 2001 he was The Australian Financial Review’s Economics Analyst. He currently writes for the Guardian and is a research fellow at Per Capita, an independent, progressive thinktank.
He held a senior role in the Commonwealth Treasury be fore serving as then Prime Minister Julia Gillard’s senior economic adviser between 2010 and 2011.
Mr Koukoulas is currently the managing director of Market Economics, a firm he set up to provide clients with insights into macroeconomic policies to help shape their financial market and policy risks.