There Is Life After Debt

Australia is well placed to “pay the piper” after the massive pandemic spending

- Benjamin Ong

The coronavirus was first detected in Wuhan, China, in mid-December of 2019; the World Health Organisation named it Covid-19 on February 11, 2020, and declared a pandemic exactly one month later.

Most governments around the world implemented social distancing and lockdowns and imposed border restrictions to limit contagion and protect lives, but “killed off” economic activity in the process, sending the world economy into its worst recession since the Great Depression of the 1930s.

The Organisation for Economic Cooperation and Development noted the economies of its 37 developed nation members shrank by 9.8% in the June 2020 quarter.

The contraction would have been deeper if not for prompt central bank responses. Central bank actions have eased financial conditions, but increased government spending has played an even bigger role in limiting a more disastrous impact and perhaps permanent damage to economies.

But it still comes at a cost. The Centre for Strategic and International Studies estimates that the G20 nations have spent around $US7 trillion ($10 trillion) - more than 10% of their combined 2019 GDP – in direct spending, tax relief, and lending as of the end of May 2020.