The EconomistMarch 21st 2020 Asia 352 diseases,it makesit practicallyimpossible
formanyIndianstoleavejobsortoworkat
home.Alltoooften,anyway,thosehomes
aretootinyandcrowdedtoallowfor“so-
cialdistancing”.Inmanycasesthereisnot
evenanywaytowashproperly:some160m
Indiansdonothaveaccesstocleanwater.
Thepotentialfora direoutcomeisglar-
ing.YetasMrLaxminarayannotes,India
hasa talentforpullingtogetherforcolossal
“non-routine” events, such as massive
weddingsandpoliticalrallies.Othershope
thatthenovelcoronaviruswilltakea bat-
tering from the looming and ferocious
summerheat.(Thatistrueofsomeother
ailments,butmaynotbeforcovid-19).
Onthestreets,meanwhile,itiscom-
montohearthewhimsicalopinionthatIn-
diansarealreadysotoughenedbyhardship
thatthisviruswon’thurtthem.Then,for
thetrulyfervent,therearemagiccures.Ata
recenteventinDelhi,membersofa fringe
cultcelebratedthecurativepropertiesof
cowurine.“Itshouldbeservedtoalltour-
istsonarrivaltocurethem,fortheprotec-
tionofIndia,”enthusesRajeevKumarof
theAll-IndiaHinduMahasabha,a Hindu
nationalistgroup.“Weareevensendinga
littlepacktoPresidentTrump,tokeephim
safefromcorona!” 7
T
he bushfiresthat raged through De-
cember and January could not stop it.
Nor could a recent fall in house prices, a
slump in iron-ore prices in 2014, the global
financial crisis or the dotcom bust of 2001.
But covid-19 seems likely to do what none
of these other setbacks could: interrupt
Australia’s unbeaten run of over 28 years
without a recession.
It is no longer a “question of whether we
have two successive quarters of negative
growth,” says Warren Hogan of the Univer-
sity of Technology Sydney, “but how severe
the contraction turns out to be.” The first
half of the year is “going to be bad”, agrees
Sarah Hunter of bisOxford Economics, a
consultancy. Output could shrink by a little
in the first quarter of this year and by about
3% in the second, according to her provi-
sional forecasts, which she expects to have
to revise as the outlook becomes clearer, if
not necessarily brighter. In theory, the
economy could rebound in the second half
of the year, but only if the pandemic is
quelled in the next 3-6 months.
Australia will not succumb to a reces-sion without a fight. Its central bank, the
Reserve Bank of Australia (rba), helped it
survive the global financial crisis by easing
monetary policy sharply. But it entered that
battle with its benchmark interest rate at
7.25%, leaving it plenty of room to cut. The
rba started this year with the rate at only
0.75%. It then cut it to a record low of 0.5%
on March 3rd and lowered it again on
March 19th to 0.25%—about as low as it can
go. The rbais helping banks to fund them-
selves, especially if they increase loans to
businesses. It will also begin buying
enough government bonds to keep the
yield on three-year securities near 0.25%,
allowing the government to spend without
fear of driving up its borrowing costs.
And spend the government will. In re-
sponse to the 2008 global financial crisis,
Australia resorted to several rounds of fis-
cal stimulus worth over 4% of gdpin total,
including infrastructure spending and
cash bonuses of up to A$900 ($531) paid to
about 8.7m taxpayers. These stimulus ef-
forts, undertaken while the Labor Party was
in power, have been derided by the conser-
vative coalition that now leads Australia’s
government. Scott Morrison, the prime
minister, has described them as ill-disci-
plined and wasteful. He won last year’s
election promising to return the budget to
a surplus, undoing the “fiscal debacle” left
behind by the “economic panic merchants”
his party replaced in 2013.
But his government’s response to the
covid-19 crisis will probably look quite
similar. Last week it launched a pro-
gramme worth A$17.6bn, or a little over 1%
of gdp, focused on bolstering consumer
spending and propping up small business-
es. It plans another round of stimulus
soon. “Everyone is a Keynesian in the fox-
hole,” as Robert Lucas, a Nobel prize-win-
ning economist, once pointed out.
But even this admirable ideological
flexibility is unlikely to prevent the econ-
omy from shrinking. The damage is already
evident. Tourism, which last year contrib-
uted over 3% of output, was reeling from
the bushfires even before the pandemic
emerged. The dramatic rock formations of
the Blue Mountains, west of Sydney, would
normally be heaving with visitors at this
time of year. Tour buses now drive by near-
ly empty. Anthea Hammon of Scenic
World, which runs a cable car and railway
through the area’s canyons, reckons visits
have fallen by up to 70%.
On the island of Tasmania, fishermen
are at a loss. They typically box up and sell
90% of their catch to China, where abalone
and rock-lobster are popular, especially
during Chinese new year. This year boats
have been stuck with hundreds of thou-
sands of dollars of unsold catch. Some fish-
ermen have been forced to recast them-
selves as fishmongers, flogging their hauls
off the side of their boats to locals at steepdiscounts. The catch—let alone sales—of
local fisheries could fall by 12% in value in
the year ending in June, according to the
government’s forecasts.
During the global financial crisis, Aus-
tralia’s close economic relationship with
China was an asset. In this crisis, it has ex-
posed the economy to early damage. The
price of iron ore, which feeds China’s steel
mills, fell by 17% from January 21st to Feb-
ruary 3rd, although it has since rebounded.
And the vulnerabilities are not limited to
mining. Australia’s educational institu-
tions host more international students,
relative to the size of its population, than
any other country. Almost a third of them
(about 150,000) are from China. Roughly
100,000 of these hapless scholars were
locked out of the country when Australia’s
government banned arrivals from China
on February 1st. Some of those have man-
aged to enter after spending 14 days in a
third country (the Australian press has
complained about students taking “quar-
antine holidays” in Thailand). But the im-
pending loss of fees is already forcing some
institutions to slash spending.
Although Australia is proud of its bust-
less record, it should not set too much store
by it. The country’s economy was free of re-
cession over the past 28 years, but it was
hardly free of trouble. Output has shrunk
for a single quarter four times since 1991.
And the economy has often failed fully to
employ its resources of labour and capital.
According to the oecd, a club mostly of rich
countries, the economy has fallen short of
its potential (its full-capacity output) in 18
of the past 28 years. Plenty of countries
have done better by that measure, includ-
ing nearby New Zealand. 7SYDNEY
A seemingly unstoppable economy
meets an irresistible forceAustralia’s economyUp, up, up
and down
The lines are sloping down