Introduction:
The recent coronavirus outbreak has affected the whole world severely. Countries seem helpless before this pandemic because of its ability to spread fast. More than four billion people across the globe have travel restrictions and are experiencing lockdown. Government authorities and economic experts are finding ways how to come out of the global financial crisis as a result of this pandemic. Australia and the United States are the two significant economies, and they are considered developed ones. Both countries have experienced the effects of this global financial crisis. It is worth explaining and understanding the impact of GFC in both countries concerning economic concepts. One can find a solution to the crisis only if there is enough knowledge of its reasons. A comparison of effects on both economies can also help. It would help find which sectors and factors are mostly affected by the GFC and why. This essay has covered these points to guide the economic and financial situation in both crucial nations. Australia is among the hardest-hit countries during this GFC, but the United States also needs to be cautious.
Main Reasons for the GFC:
GFC now has the context of coronavirus, and the central reason for it is this pandemic. It has shaken the supply chain that has affected the demand and supply of goods and services in different sectors of the economy. The United States and Australian governments have been going for market interventions because companies and different sectors cannot grow on their own. Its reasons are mainly understandable through the macroeconomic and the microeconomics perspective of the economy.
Microeconomic Perspective
Recent figures from the United States and Australia show that both countries have a severe negative effect on the pandemic. The GFC is related to demand and supply equilibrium, where different sectors seem helpless before the elimination of demand ultimately. Airlines is the sector that is walloped in both economies as travel restrictions have harshly hit the sector. Similar is the case with transportation because travel restrictions in both countries have affected the mobility of people. It may be for the movement of people as well as the supply chain of goods. Many pharmacies and retail stores in Australia are complaining of having low supplies (Suneson, 2020). The restaurant industry has hit hard but living in hotels has decreased substantially. In the United States, there is an 11.1 percent decline in revenue per room. It is an example of how sharply lower demand has affected the business. However, the impact of the pandemic on freight and transport in Australia is also due to China, which is Australia’s biggest trading partner. Australia’s hotel and tourism are in crisis since the bushfires in summer, but this outbreak has prolonged the crisis in the economy. Governments of both countries are spending a considerable amount to support the economy, and it is an example of an intervention. There is more information in the following section using a macroeconomic perspective (Plastow, 2020).
Macroeconomic Perspective
Australia and the United States have seen common sectors being affected by the pandemic. The GFC is easy to understand through government actions and steps. Government steps can be different because of the different approaches to deal with the situation. A report related to Australia states that the economy would need a $5 billion injection each quarter to avoid negative impact. Different factors, including global trade, spending of households and consumers, and declining in investment and employment, have led to drastic changes in the Australian economy.
Macroeconomic indicators of both countries show adverse effects. The GDP growth rate of the United States would be 2 percent in 2020, which is down from 2.2 percent in 2019. The unemployment rate would be 3.5 percent in 2020 that would increase in the coming years to reach 3.7 percent in 2022. Inflation would be 1.9 percent in 2020, which would be 2 percent in the coming years (Amadeo, 2020).
The GDP in Australia would expand only 0.4 percent in 2020, which is 1.5 percent below earlier forecast. Unemployment and inflation are also set to increase as the coming months would record unemployment at 11.1 percent. Inflation would be 1.82 percent in 2020 that would slightly increase to almost 2 percent in the next year (Heath, 2020). Reasons are apparent where aggregate demand for economies is declining, and there is no balance of supply and demand. Businesses have to lay off employees, and governments are announcing economic stimulus to keep employees on the job.
Comparison of Effects in Australia with the United States:
The comparison of the effects of coronavirus in Australia with the United States reveals that Australia is more affected than the United States. The airline industry, hotel and restaurant, retail, and transportation industries in both countries have affected in a similar pattern. Travel restrictions and fear of spreading the pandemic have cautioned every country, and as a result, the airline industry reaches a standstill position. The retail industry is experiencing low demand, and similar is the case with the hotel industry. However, the impact on the tourism and hotel industry is severer in Australia because it has been facing the adverse effects since the bushfires in the summer. Moreover, it has China as the biggest trading partner, and China has taken severe actions against the pandemic. Additionally, there are reports that the Australian economy would contract double the rate of the world. It means that the Australian economy has to take strategic and more robust steps to avoid the crisis as a result of the pandemic (AAP, 2020).
The tourism sector, for example, is the hardest hit sector in Australia. Unlike the United States, the sector heavily relies on one country, i.e., China. Almost 15 percent of visitors or tourists come from China to Australia, and they spend heavily in Australia. Reports suggest that they spend around $12 to $16 billion during their tourism trips that are more than the combined spending of American, New Zealand, Japanese, and British tourists. The case of the United States does not present such a gloomy picture. The Tech industry of the United States may severely feel the effect that is related to China. China is a manufacturer and outsourcing center for many tech companies in the United States. Otherwise, the United States has a robust demand and supply mechanism that would not affect its economy very much.
Effects of GFC and their Difference in Two Countries:
Reasons for GFC and its impact on both selected countries indicate that the crisis is grave. It has been disrupting the equilibrium and balance of demand and supply. The US tech industry and the Australian industry are examples of how a low level of supply has adverse effects. While a low level of demand has affected sectors like airlines and transportation. People are not going out of their homes, and these industries have felt its effect severely. The impact of the GFC is different in Australia and the United States, and the reason is due to limited trading partners. The presence of low resources for economic stimulus can be an essential factor in the economic revival in both economies. The European Union, the UK, and major Asian countries are concentrating on containing the pandemic. The economic activity has not been their priority. As a result, there is a serious concern over the certainty and sustainability of financial steps in the short term at least (Mann, 2020).
The above discussion has found some factors and reasons for differences in both economies. They include the presence of complex and robust nature of the economy. The US economy is more significant and has many sectors integrated. The country also has many trading partners that give it room for growth. It is not the case with Australia that has a comparatively limited number of trading partners. The increase in unemployment and inflation is also due to the little or limited chances for growth in the Australian economy. Both economies have to work to increase aggregate demand, and it requires an economic stimulus package for different sectors in the economy. Potential factors and reasons for the difference are mainly due to the size of the economy and heavy reliance on one or two sectors (McKibbin & Fernando, 2020).
Conclusion:
The paper concludes that the economic perspective of GFC can be understandable amid the coronavirus outbreak. The pandemic has shaken the global economy, and every country has felt its harmful effects. However, the extent of adverse effects varies from country to country. This paper has compared Australia and the United States in light of macroeconomic and microeconomic indicators. It indicates that sharp differences in demand and supply have triggered broad changes in each economy. It has resulted in layoffs by firms that have caused an increase in unemployment. Economic concepts have helped understand the effects of the pandemic, and it recommends that Australia needs to be more cautious. Reports have suggested that Australia would be among the hardest hit countries during this GFC. However, the United States also has to take action to make the demand and supply of goods and certain services. The paper recommends considering economic concepts to make things favorable for different sectors of the economy.
References
AAP, 2020. Coronavirus crisis: IMF forecasts Australian economy will contract 6.7 per cent. [Online] Available at: https://www.perthnow.com.au/news/coronavirus/coronavirus-crisis-imf-forecasts-australian-economy-will-contract-67-per-cent-ng-b881519642z [Accessed 20 April 2020].
Amadeo, K., 2020. US Economic Outlook for 2020 and beyond. [Online] Available at: https://www.thebalance.com/us-economic-outlook-3305669 [Accessed 20 April 2020].
Heath, M., 2020. Australian Economy Headed for Recession: Bloomberg Economics. [Online] Available at: https://www.bloomberg.com/news/articles/2020-03-09/australia-s-economy-set-for-first-recession-since-1991-mcintyre [Accessed 20 April 2020].
Mann, C.L., 2020. 8 Real and financial lenses to assess the economic consequences of COVID-19. Economics in the Time of COVID-19, pp.81-85.
McKibbin, W. & Fernando, R., 2020. The Global Macroeconomic Impacts of COVID-19: Seven scenarios. Centre for Applied Macroeconomic Analysis, pp.1-43.
Plastow, K., 2020. These are the jobs the coronavirus will affect most. [Online] Available at: https://thenewdaily.com.au/finance/consumer/2020/03/13/coronavirus-jobs-most-risk/ [Accessed 4 April 2020].
Suneson, G., 2020. Industries hit hardest by coronavirus in the US include retail, transportation, and travel. [Online] Available at: https://www.usatoday.com/story/money/2020/03/20/us-industries-being-devastated-by-the-coronavirus-travel-hotels-food/111431804/ [Accessed 20 April 2020].
