Economic Update: Light at end of COVID tunnel says Jonathan Pain
A “stunning cauldron of economic, financial, political, and geopolitical forces” will see 2020 regarded a watershed year, the like of which hasn’t been seen since 1989, pre-eminent Australian economist Jonathan Pain told attendees at Matthews Steer’s Global Economic Update virtual event on October 15.
IMPACTS OF COVID-19
“(Global economics) has never been as complicated as it is today – we are witnessing unprecedented uncertainty,” Pain told the event’s 500-plus online viewers. “The pace of change, the rate of change, the complexity of the economic political and geopolitical environment is truly stunning… and this year will certainly shape and define history.”
Pain said COVID-19 had served as an accelerant and amplifier of a series of pre-existing trends and global vulnerabilities – triggered in part by 2016’s election of Donald Trump and Brexit – including deglobalisation, economic nationalism and protectionism, and the decoupling of China and the US. And he said that he expected the deglobalisation and decoupling processes to continue, but remained optimistic that Australia and China could continue to trade with one another, despite the rising anti-China sentiment globally.
“In China, it has been described as a trade war. It is much, much more than that. It is an economic war, it is a trade war, it is an ideological war. It is a cold war… the like of which we haven’t seen in our lifetime.”
IMPACT OF ANTI CHINA SENTIMENT
Pain said news of the rising tensions between China and India, and China and Taiwan, had been forced off the front pages of Australian newspapers by Trump’s presidential campaign, but that Australia’s ANZUS treaty, and growing coalition with Japan, South Korea, India and Vietnam, meant there was “no doubt whose side we’d be on” if there was an escalation of hostilities in the Himalayas or the South-East China Sea.
“We're bound and protected by the ANZUS treaty and we hope and pray that that is not tested,” said Pain. “Call me a hopeless optimist. I'm still of the view that we can work with China and that it won't end up being something really horrible and nasty (but) I've got also got to be a realist.
“The leadership in China has become much more unrestrained of late and it'd be irresponsible of me to pretend none of those things are actually happening. That is the new geopolitical reality. Ultimately we are very, very dependent on China so there's hope that we can resolve some of our differences,, but until the Chinese communist party pulls back a little bit tensions are going to run hot.”
GLOBAL GEOPOLITICAL ENVIRONMENT
Despite the prevailing trend towards deglobalisation, Pain said he wasn’t surprised by the rate of financial stimulus implemented by governments around the world. “Economic historians will acknowledge that the depth, severity and speed of the collapse global economic activity has no precedent in economic history.
“We really need to get our global economy back on track pretty soon, because poverty levels are going to rise exponentially in the next six to 12 months if we don’t.
“Why did policy makers have to unite to simulate and save and protect their citizens? Surely it was an easy trade off. Which do you wish to see: anarchy, or a rise in inflation?”
DOMESTIC FINANCIAL SITUATION
Turning his attention to Australia, Pain said the historic budget handed down by Josh Frydenberg on October 6 was necessary, and was due, in part, to the extended lockdown in Victoria. “What happens in Melbourne, doesn’t stay in Melbourne,” said Pain.
“Victoria comprises 25% of the Australian economy and the Federal Government and Reserve Bank of Australia are engaging in extraordinary stimulatory policy. We are currently in a recession, which hopefully we're beginning to recover from (and) there is no doubt in my mind that the Reserve Bank is now targeting employment, as opposed to inflation. It’s all hands on deck and we're going to see further cuts, albeit from already very low levels.”
Pain also predicted that the Australian Dollar could benefit from a potential decline of the US Dollar against most major currencies. “I've always been optimistic about Australia and if I look around the world in terms of the very large investment institutions, particularly some of the central banks and the sovereign wealth funds, I think they will probably be quite well disposed towards Australia in the medium term once we get through what is a very difficult time, and I think they might be looking to allocate slightly more money to Australia over the next couple of years,” he said.
US PRESIDENTIAL ELECTION
Pain, who famously contradicted prevailing political punditry when he predicted Trump’s US election victory in 2016, also shared his insights into the forthcoming US election at Matthews Steer’s Global Economic Update event, this time predicting a win for the Democrats.
He said there are a number of significant differences between this election and the last, including Democrats’ complacency that Hilary Clinton’s ascendency to the White House was a foregone conclusion in 2016 and contrasting enthusiasm for opposing Trump in 2020, Trump’s declining popularity with white female voters, and Biden’s improved polling in the ‘battleground’ states. “The Democrats’ rallying cry right now in the United States is 'don't forget 2016 and never let it happen again'. Strap yourselves in, put your seatbelts on. November 3, 2020 is going to be electrifying!”
Triumph of Human Ingenuity
In conclusion, Pain implored attendees to be adaptive, humble and open-minded in dealing with the fast-changing economic, political and geopolitical challenges they are facing in the wake of COVID-19.
“Today each of us is witnessing a degree of polarization which personally saddens me,” said Pain. “I'm a great believer in civil debate and discourse and respect for different perspectives and opinions… and yet here we are in 2020, and we see a degree political polarization, which is really quite saddening. Where each of us is now seemingly intent on hiding in our respective echo chamber, where all we wish for is the echo of our own political positions and ideologies.“
And, despite the extreme economic and geopolitical challenges faced globally, he believed there was light at the end of the COVID-19 tunnel and urged Australians to look to Taiwan’s exemplary COVID-19 response blueprint.
“The Taiwanese had the lowest fatality per capita rate in the world, and guess what? The Taiwanese government did not shut down the economy,” he said. “The world will need to adapt and learn to live with the coronavirus through implementing the basics, test, trace, isolate, protect the vulnerable, implement protocols and processes that the Taiwanese have implemented.
“I will not accept that there is no light at the end of the tunnel. I will not accept that the ingenuity of humanity will not ultimately prevail. I will not accept that the years ahead will have us remaining in this almost tortured, fragmented condition. I reject that. The ingenuity of humanity will ultimately prevail.”
The Global Economic Update is one of a suite of insight and networking events staged annually by North West Melbourne’s premier business and accounting consultancy firm – Matthews Steer. It was Matthews Steer’s first virtual event, streamed to more than 500 people on October 15, and also included a federal budget update from Matthews Steer Partner Damian James.
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