Government spending is crucial to fight recession and to stimulate recovery.
Yes, I agree with the reasoning and analysis of Ross Gittins from which he concluded that in order to fight the recession caused by the global pandemic, the Australian government needs to support the economy through increased spending. Gittins suggests that the debt aversion philosophy of Australian government is impervious to reason and that the government should borrow more money from financial institutions to inject it into the Australian economy. On the face of it, the mentioned reasoning entails that recessions involve contraction of businesses and households expanding which is detrimental for an economy which is already suffering from the recession. However, by injecting money into the economy and increasing aggregate expenditure, the government can facilitate recovery.
Although there are certain conditions which should be met for the effective implementation of this strategy, overall, this is a sound and a necessary strategy to support the Australian economy during the recession. By certain conditions, I mean that the fiscal stimulus should be aimed at demographic which is more likely to spend it and providing assistance to economic insecure demographic. If government stimulus is injected properly, it can have a significant positive effect on the recovery of the economy as it will support expenditure which in turn supports business, which in turn support household income through employment.
Another point Gittins mentioned is that government should even take loans for providing an adequate fiscal stimulus for the economy. This is also correct in my opinion mainly because prolonged recession and unemployment are more harmful to an economy as compared to debt, and also, Australia does not have an immediate debt crisis, it has a long-term fiscal challenge and concerns regarding debt should go on the back burner in a recession.
The article also includes excerpts from the reports of economic authorities like OCED and IMF to support the argument. Both institutions suggest that businesses should be supported by the government through fiscal stimulus and in addition to this, the government should also increase spending to improve infrastructure and social safety. Therefore, considering the economic analysis and the support from international authorities, I agree with the statements made by Ross Gittins.
Due to closed borders, export restrictions and travel bans, Covid-19 has severely impacted supply chains of the Australian economy.
Covid-19 is one of those black swan events that force entire industries to transform and rethink their operations and their supply chain model. It has exposed the vulnerabilities in the supply chain model of many organizations, especially those that procure materials from china, which is the epicentre of the global pandemic. The problem is further exacerbated by the fact that around 200 of the top 500 Fortune global firms are heavily reliant on Wuhan, the industrial hub of China. Moreover, considering that China is also the biggest trading partner of Australia and contributes over $190 billion worth of exports and imports, it is not surprising that the pandemic has severely impacted supply chains in the Australian economy. For instance, disruptions in the supply chain of clothing products will alone lead to revenue losses of more than 10 per cent in 2020.
Supply chains of the Australian clothing industry are especially exposed to the adverse impact of a pandemic, as it imports most of its textile and clothing products from china (around $5 million USD) and other Asian nations like India and Bangladesh. Since most of these nations have restricted business operations, and are closing borders in order to control the spread of the virus, Australian retailers are not able to procure materials. This is especially true for retailers that follow the just in time supply chain model, but for retailers who follow traditional two-season model, summer stock has been dispatched already, however, further procurement will be quite challenging. Furthermore, such disruptions are particularly being experienced by companies without sufficiently diversified supply chain and short inventory. Also, even though there have been similar supply chain disruptions in the past, Covid-19 is unique in terms of its scope, the affected population, long-lasting nature and its geographic impact. Apart from the clothing sector, the Australian economy as a whole is also experiencing slow growth and can result in up to 15 per cent contraction in national GDP.
Australian Fashion Council. 2020. AFC Covid-19 australian TVF industry survey. Available at: https://ausfashioncouncil.com/council-of-textile-fashion-blog/2020/4/29/the-covid-19-australian-tcf-industry-survey-results-are-in-heres-what-our-industry-has-to-say (Accessed: 20 Jul 2020]
Ivanov, D. and Dolgui, A., 2020. Viability of intertwined supply networks: extending the supply chain resilience angles towards survivability. A position paper motivated by COVID-19 outbreak. International Journal of Production Research, 58(10), pp.2904-2915.
McKibbin, W. and Fernando, R., 2020. The economic impact of COVID-19. Economics in the Time of COVID-19, 45.
Ozili, P.K. and Arun, T., 2020. Spillover of COVID-19: Impact on the Global Economy. Available at SSRN 3562570.
Parsons. T., 2020. How coronavirus will affect the global supply chain. Available at: https://hub.jhu.edu/2020/03/06/covid-19-coronavirus-impacts-global-supply-chain/ (Accessed: 20 Jul 2020).
Remko, V.H., 2020. Research opportunities for a more resilient post-COVID-19 supply chain–closing the gap between research findings and industry practice. International Journal of Operations & Production Management.
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