Coronavirus, or COVID-19, is having a profound impact on the Australian economy, as well as other economies worldwide. Recently, wall street (referring to all the banks, hedge funds and securities that drive the american financial system) ended an 11 year bull market, and entered a bear market for the first time since the Global Financial Crisis of 2008. A bull market refers to a market that is going up aggressively over a period of time, characterised by high employment and consumer optimism. The other kind of market, a bear market refers to a market which is moving downwards quarter to quarter. It is caused and characterised by a fear to invest, pessimism and prices dropping. This change in markets has been attributed to the WHO announcing COVID-19 as a global pandemic, as of last night (12/3/20). Wall street, being the driving force of the American economy, entering a bear market hints at the American economy entering a recession at some point in the near future – much like they experienced in 2007-9. A recession can be defined as two quarters in a row of negative economic growth. Personally, I do believe that the US economy will enter a recession, as the shock of entering a bear market, combined with the fear and uncertainty surrounding Coronavirus will prove too strong for the economy to bear.
The Australian economy however managed to avoid a recession during the Global Financial crisis. It is once again trying to avoid a recession, and the latest effort to support this is a $15 billion support package being announce by the government, designed to immediately boost the economy through injecting cash into Australian businesses. The support package will also enable Australian citizens on a pension to claim a one-off cash payment. Scott Morrison has detailed that the package is focusing on keeping businesses open and people in work, amid fears that unemployment will continue to rise.
People on pensions, including welfare and newstart beneficiaries are receiving payments due to the expectation that they are much more likely to spend the money they receive than people on a higher income – therefore stimulating the economy by keeping money circulating.
All of these problems I have just detailed in both the Australian and US economies have been caused or supercharged by the ongoing pandemic of COVID-19. They will affect everybody, as the economy always does, and the full extent of the damages to both economies is yet to be seen, but I fully expect both the Australian and US economies to enter technical recessions.
The Balance. 2020. Wall Street: How It Works, Its History, and Its Crashes. [ONLINE] Available at: https://www.thebalance.com/wall-street-how-it-works-history-and-crashes-3306252. [Accessed 11 March 2020]. Rule One Investing. 2020. Bull Market vs Bear Market Definitions & Strategy | Rule #1 Investing. [ONLINE] Available at: https://www.ruleoneinvesting.com/blog/stock-market-basics/whats-the-difference-between-a-bull-and-bear-market/. [Accessed 11 March 2020]. ABC News. 2020. Coronavirus support package will see businesses get cash payments and tax relief to get them spending – Politics – ABC News (Australian Broadcasting Corporation). [ONLINE] Available at: https://www.abc.net.au/news/2020-03-12/coronavirus-economic-stimulus-combatting-the-spread-of-covid-19/12047050. [Accessed 11 March 2020]. ABC News. 2020. Coronavirus support package will see businesses get cash payments and tax relief to get them spending – Politics – ABC News (Australian Broadcasting Corporation). [ONLINE] Available at: https://www.abc.net.au/news/2020-03-12/coronavirus-economic-stimulus-combatting-the-spread-of-covid-19/12047050. [Accessed 11 March 2020].
Year 11 MHS Economics 2020 