Macroeconomic Impacts of COVID-19

 The macroeconomic impact of COVID-19 is severe. The situation is quite dire at this point: unemployment is soaring, consumer spending is falling, and suppliers are shutting down (due to both financial reasons and compliance with social distancing rules). The IMF has just announced the COVID-19 related economic downturn will see the largest reductions in GDP since the Great Depression. Governments and central banks are coordinating their efforts to support the economy through this period by taking on debt to finance large stimulus packages and pushing interest rates down to near zero. In this article, we will explore how some of the key macroeconomic indicators have been affected by COVID-19 so far.

The AFR’s economist survey for the March quarter revealed that the median forecast for end-of-year GDP in Australia is a 3.9% contraction, with unemployment spiking at 8.5% by the end of June. The IMF is more pessimistic, forecasting is a 6.7% decline in the Australian economy this year.

It is expected that measures such as the recently passed JobKeeper Payment scheme will provide some offset to the economic contraction, however. Like many others, Bill Evans, Westpac’s chief economist, revised his original unemployment rate predictions for the end of June after factoring in the fresh stimulus, from 17% down to 9%. Evans’ latest figure is roughly in line with Treasury’s estimates released today that have unemployment peaking at 10% in the June quarter compared with a peak of 11.2% in 1992.

The economic consequences of the pandemic are expected to hit the United States with even greater force. Over 16 million people have applied for unemployment benefits since mid-March. On March 30, the Federal Reserve Bank of St. Louis, estimated that job losses from COVID-19 could reach 47 million and push America’s unemployment rate to 32.1%.

Consumer spending

NAB’s Monthly Business Survey for March released earlier this week saw its largest monthly fall on record to -66, more than three times lower than the -21 index points reported in the GFC. Note 0 represents ordinary business confidence. The drop has followed sharp declines in sales, profits and employment around the country, particularly in the tourism and education industries. Alan Oster, NAB Group chief economist, added that while a fast rebound is expected, most businesses also “expect it to get worse before it gets better”.

Business closure

The ABS has now released two surveys looking into the business impacts of COVID-19. In the first survey, conducted between 16 – 23 March, 82% of businesses reported a reduction in local demand over the past two weeks while 81% expected to local demand to diminish in the near future. (see figure below):

Source: ABS

The second survey covered the week beginning 30 March and revealed that 10% of businesses had stopped trading and two-thirds had renegotiated rent payments. The data shows that accommodation and food services, information, media and telecommunications, and arts and recreation services have sustained the greatest closures with 31%, 35% and 53% of businesses closing down with regard to ABS business counts for June last year, respectively.

Increases in the number of businesses seeking government assistance beyond the existing programs are also expected. The size of the packages and businesses involved range considerably. For now, it appears that the government, in tandem with big four banks, will try to keep SME’s afloat with cheap lending and other financing benefits. The government announced a $715 million aviation sector rescue package mid-March but the Australia Government has exhibited reluctance in answering Virgin Australia’s $1.4 billion plea for assistance. The airline recently entered a trading half in advance of a government announcement expected in the near future. Industry experts believe Virgin desperately needs a bailout to survive beyond September.

Government spending

The IMF Policy Tracker is keeping tabs on the economic stimulus packages of 193 governments. The data shows that those who live in countries with more than $10,000USD GDP per capita can expect large welfare benefits, with 80% proposing stimuli packages valued at over 1% of GDP. But, according to QUARTS, the Tracker suggests that countries with less than 10,000USD GDP per capita will be in urgent need of international help with only 42% of them indicating fiscal stimulus packages of more than 1% of GDP (as of April 1).

Of the 193 countries included in the IMF’s dataset Australia is financing the 12th largest virus response in terms of fiscal stimulus as share of GDP (9.8%). But the dataset does not include the responses of countries’ central banks. Combined with the RBA’s monetary policies, Australia’s national effort is worth 16.4% of GDP.

Source: IMF Policy Tracker as of April 1

The Illion x AlphaBeta COVID-19 Economic Impact Real Time Tracking platform suggests that Australia’s fiscal stimulus has had positive effects across a broad range of indicators. Discretionary and total spending have increased substantially over the week beginning 23 March to nearly normal levels, while essential spending has exceeded the normal weekly base. Additionally, Illion data shows that while shutdown-affected industries have fallen sharply, the stimulus is driving strong growth in other areas of the economy.


At this stage, COVID-19 is already hugely impacting the economy. Unemployment is set to rise to double digits, consumer confidence has been smashed, business closures are growing, and GDP is expected to fall to a degree not seen since the Great Depression. Government spending has provided much-needed stimulus in the economy, but the extent of the damage will be largely dependent on how long social distancing measures persist.


This article was prepared by Ben Scott, Research Assistant, and Gene Tunny, Director, of Adept Economics. Please get in touch with any questions or comments to

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