E&Y chief economist: The now, next and future after COVID-19

Ernst & Young Oceania chief economist shares insights into impact of the crisis, how Australia's recovery could pan out, and the future permanent changes we can expect to consumer lives

COVID-19’s drastic impact on the global economy will trigger big structural changes to Australia’s economy including rising protectionism, increased concentration of power at the top end of town and permanent changes to the way we work, play, eat and exercise.

That’s the view of Ernst & Young Oceania’s chief economist, Jo Masters, who spoke during this week’s ADMA Data Week on the now, next and beyond of the economic situation created by the pandemic. As well as reflecting on immediate economic impact and Australia’s response, she explored what recovery could look like, and importantly, economic aspects that could see things change permanently in future.

As Masters pointed out, we find ourselves facing an almost unimaginable economic landscape driven by a health crisis that’s plunged the country into recession for the first time in 30 years. A proxy often used to demonstrate economic activity is hours worked, and these contracted by 10 per cent in April and May. While figures show some bounce back in June, Melbourne’s subsequent stage 4 lockdown shows the significant headwinds we will continue to face for some time to come, Masters said.

What’s more, 1 million Australians are unemployed and 3.5 million are accessing JobKeeper. A further 600,000 Australians have left the workforce completely, Masters said.

“We know when we close borders and implement social distancing, it has immediate and devastating impact on economic activity and labour market,” she commented. “But as we ease those restrictions, it does support improvement in economic activity. It’s not symmetrical – there is economic ‘scarring’ as firms never reopen, people who can’t bounce back into jobs, and caution in households and business.

“Nevertheless, one in three jobs lost when we started to lockdown were back on payroll by mid-July. Consumer and business confidence lifted with easing of restrictions.”

Turning then to recovery, Masters said two key factors will put Australia on a constructive path: Containment of health crisis and what that means for lockdown policy; and the government’s response through policies that help cushion the blow.

“While there are many unknowns, it’s clear recovery will be slow, protracted, uncertain and bumpy,” she continued. “At Ernst & Young, we describe a saw-toothed recovery – a Nike swoosh with a very bumpy bottom. The problem is, we don’t know how deep bumps are, how long they will last or when the next one may be.  

“Melbourne is a living example of what creates that lumpy bottom. We saw jobs pulled, properties pulled off market and consumer sentiment slump across the nature.”

Staying nimble in this environment is going to be critical as a result, Masters said. One silver lining she pointed to was economists and industry harness a wider array of real-time data assets to better understand and respond to the unprecedented crisis circumstances. This has seen government organisations such as the Australian Bureau of Statistics, as well as commercial institutions such as banks, sharing data insight, as well as led to an increase in digital data sets used to better understand economic sentiment and impact.  

What’s more, policy support in Australia has been impactful and largely done its job, Masters said. “Unemployment expected to peak at 10 per cent, not the 15 or 20 per cent we feared, which shows us policy has cushioned the blow,” she said.  

Australia’s strong balance sheets, cheaper borrowing and AAA credit rating will also help recovery.  

Future predictions

But how about the future? Masters said there’s no doubt the economy will face big structural changes.

“Things like working from home, the adoption of technology and use of data were in play before COVID-19, and the crisis has accelerated those changes,” she said.

There are four more structural changes E&Y expects to see. The first is rising protectionism and dislocated supply chains reshaping the balance between resilience and profitability for Australian companies.

Secondly, Masters expected increased concentration among big corporates. “The reality is the big end of town is more able to withstand this kind of economic shock. We’re already seeing M&A activity in mining for example. That will impact industry structure,” she said.

The government will also have a larger role in the economy and set markets in the foreseeable future. Lastly, and arguably most importantly for marketers, are the permanent changes in how and where we work, shop, entertain, eat and exercise.

Masters pointed to EY’s recently established global Future Consumer Index, a monthly survey measuring consumer trends quantitatively and qualitatively. Asked how life has changed in the  crisis, and how it’s expected to change permanently, the majority of respondents reported big changes to how they socialise, shop, buy and travel.

More important is the number of people expect permanent change, Masters said. “About one in three expect to permanently change how they socialise, travel, shop, entertain, use transport and products they buy,” she noted.

“We are also seeing increased prevalence and preference for Australian-made products.”  

Read more: Forrester: 5 COVID-related trends shaping the next decade

The future won’t just be shaped by new influences, it will also be shaped by existing ones, Masters added. The good news is these leave Australia is in decent shape.

“Many factors underpinning Australia’s long run of prosperity remain intact despite the hit from COVID-19,” Masters said. “Australia remains desirable location for skilled migrants. The rise of the middle class in Asia, their needs and wants and our ability to play in that space, remains intact. And we continue to have natural advantage in resources, renewables, agriculture, medtech and waste, for example.”

Of course, long-term recovery won’t be easy, and Masters called on policy settings that drive efficiency and make the most of these fundamentals to get Australians back into jobs.

“We will need productivity enhancing reforms, raising the speed limit for the economy so we can grow faster, which is important for jobs and pay back debt without constraints of inflation or utilisation of assets we have,” she said.  

“After decades of little serious reform, COVID-19 has given us a burning platform to put it all on the table – tax, industrial relations, red tape and skills. We need to have a conversation about how we build an efficient and resilient economy. And in doing this, we will create an economy that continues to create economic opportunity, which is so important for our children and our immigrant population.”

As for the role of marketers in this mix, Masters saw the function as more important than ever in how organisations build resilience and adapt for the future.

“In order to stay agile and ride out those bumps, you need to know as much as you can about your audience and those you sell to. No one knows that better than people in marketing,” she said. “Having more information you have on client, and using data to drive that and feeding information back to people making decisions in the firms you work for and work with, will be critical.”

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, follow our regular updates via CMO Australia's Linkedin company page, or join us on Facebook: https://www.facebook.com/CMOAustralia.

 

 

 

 

 

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