SYDNEY – Kris Botha suffered heavy losses when a second wave of coronavirus infections in the Australian state of Victoria forced beauty salons and spas in the coastal city, about 100 km south of Melbourne, to close for five weeks from March.
Botha’s weekly business revenue has slumped from 8,000 to 10,000 Australian dollars ($ 5,700 to $ 7,100) before COVID-19 to between now AU $ 300 and AU $ 500, combined with shipping beauty products and other means. Overall, Botha estimated that around AU $ 180,000 in revenue was lost during the lockdown period.
The problems reflect problems facing thousands of businesses across the “lucky countries” that have slid without a recession for 29 years. Australia is now facing its worst downturn since the Great Depression, made worse by tight mobility restrictions in Melbourne.
“It’s tight and it’s juggling and very anxiety-provoking because you just wonder where it all went,” Botha said.
He is counting on Australia’s conservative government to keep fiscal taps open when it issues the federal budget on Tuesday. Economists expect an additional AU $ 40 billion to AU $ 50 billion stimulus this year, which will push the country’s budget deficit to a record high above AU $ 200 billion.
Australia’s initial lockdown in March was instrumental in containing the spread of the virus and preventing a spike in infections and deaths unlike those experienced in Europe and the US.
But a devastating second wave in Victoria during July and August saw the country’s case count quadrupled to more than 27,000 while deaths have jumped eightfold to nearly 900.
As a result, Melbourne and the surrounding area have been isolated since early July, and strict stay-at-home orders have kept schools, child care centers, cafes, restaurants and shops closed since then.
As the number of cases has dwindled in recent weeks, some measures are being eased gradually, but most businesses in the state – including Botha’s – will most likely not start operating in late October.
Adding to their woes, the government has started reducing the salary subsidies under the JobKeeper scheme as well as the higher unemployment benefits paid under JobSeeker.
Botha said the government’s support allowed him to maintain his business until now.
“It is very important for us to have it,” he added. “It’s hard for the government because they’re trying to pay the bills for the Victorian problem when other parts of the country open up and happen.”
While some of the payments are being reduced, Canberra is widely expected to announce a number of welfare measures on Tuesday, including an extension of its wage subsidy scheme, cuts in personal taxes, incentives to increase business investment and a scheme to promote housing construction.
Analysts said if these measures were not in place, authorities would have to brace for a wave of bankruptcies with Australian gross domestic product growth expected to remain weak in the near term as the tourism, education and retail sectors take a hard hit.
Australia’s Westpac banking recently downgraded its growth forecast for the AU $ 2 trillion economy to 2.5% from 3% in 2021. That’s below 3.75% which policymakers see as a trend but much better than the 7% contraction. suffered in the June quarter.
“A lot of disruption to the economy will still be seen in 2021,” said Westpac chief economist Bill Evans. “There will likely be an increase in business failures once the government and bank support packages are withdrawn.”
He predicted the Australian economy would still operate below pre-COVID levels by the end of next year.
Australia’s central bank has also painted a grim outlook, expecting the unemployment rate to rise to 10% by the end of the year and remain high around 7% by the end of 2022 compared to below 5% before COVID.
The long-term blow to the economy has also worried industry.
“We are in uncharted waters, and maybe we need to focus more on building and running the economy,” said Mark Edmonds, president of the local Chamber of Commerce in Geelong, a manufacturing hub bordering Melbourne.
“I think pulling back fiscal support too soon will have long-term consequences.”
In late September, Treasurer Josh Frydenberg completely ignored Australia’s efforts to return the budget to a near-term surplus, saying it would be “unrealistic” and “damaging to the economy.”
The Reserve Bank of Australia, which made two emergency rate cuts and opened up cheap funding to banks at the start of the pandemic, said it was also assessing various monetary policy options given the weak inflation and employment outlook.
Economists widely expect the RBA to cut its benchmark interest rate to a record low of 0.1% in November, according to a Reuters poll.
Meanwhile, many businesses depend on government support to keep going today.
When Botha’s beauty salon first closed its windows in March, only five of her 11 staff qualified for the JobKeeper scheme, forcing her to give up another one.
He negotiated lease concessions from his owners, suspended payments to banks for his business loans through October and used the investment to pay ongoing bills.
“People find it very difficult to get over it. I think there is a lot of business that is not coming back,” he said.
“But we hope there will be recognition of what happened in Victoria and some sort of extension of support that can help businesses get back on their feet.”