The worst is not over even if there is no second wave

The French can return to their Pernod and Galois in their Parisian bars or, if their taste runs to ouzo, holiday in Greece. Not so the hapless British, banned from Greece, banned from their beloved pubs. Illustrations of what the OECD terms the global economic tightrope; loosen too much, a second wave, loosen too little, worsen the economic harm.

The OECD thinks that Australian GDP will fall 5% this year, recovering to trend growth rates next (only South Korea does better). But, they warn, if there is a second wave it will be 6.3%. The OECD average is 7.5%, ‘plummeting’ 9.3% in a second wave, the UK is 11%, 14% in a second wave. With or without a second outbreak the consequences will be severe and long-lasting.

I hope the OECD is right about Australia, I have a nagging suspicion not. I think they under-estimate the costs of avoiding that second wave.

Second waves can happen for two reasons. If the disease mutates (the antigenic drift and shift we see with influenza), a second wave can strike even when the population has high infection rates from a first wave. Infection in the first wave does not protect.

One can also strike if the spread of the disease is halted for a time, leaving the population largely naïve, and then resumes. This can be a natural phenomenon. In 2009 there were two pandemic waves in the US separated by the summer vacation; no schools and colleges, slightly lower workforce participation, warm weather, unfavourable conditions for spread. They can also result from policy. Social distancing stops the spread. Relaxation starts it up again. That is today’s concern.

We have had 7,355 cases. We have performed 1.8m tests, 0.4% were positive. Globally, around 0.7% of those tested are positive. If the tests are an accurate indicator of immunity, 6 months into the pandemic, 99% of the population may still be susceptible. The global population, not just Australia, is rife for a second wave. With the pandemic so globally entrenched, it will remain a concern, absent a vaccine, for at least another year.

Our Covid-19 policy started with the mantra, ‘flatten the curve’. Make sure the number of cases does not overwhelm our hospitals. It morphed into elimination. My work suggested that flattening the curve was the right way to go because the economic costs of elimination and the cost per life saved were vast. But it required that we tolerate some deaths and manage infections through extensive testing and flexible, nuanced and highly targeted social distancing.

Now I am not sure this is possible, politically if not practically. On the one hand, we aspire to zero deaths, seemingly whatever the cost. On the other, when you open the pubs and beaches and footy returns, tired of the strictures of social distancing, we flock back. If there is a source of infections, imported or in the community, the pandemic will get away from us as soon as we relax. The costs of bringing it back under control will be as large, perhaps larger, than the costs of prevention from the outset.

So I do not think that there will be a second wave in Australia. We will safeguard our very low infection rate even as second waves emerge in Europe and the US as they surely will. We wait it out in hope of a vaccine.

Our borders will be our main defence. Tourism, our fourth largest export, drew 9.3 million overseas visitors in 2019 who spent $44.6bn. It accounts for 8% of our workforce. Education, our third largest export, generated income of $38bn in 2019. March and April 2020 saw a 10-fold increase in deferments. Student arrivals fell 50% in February. Decimation might be the right word. It is hard to see either recovering while quarantine, the main border safeguard, remains even if China relents on its travel warnings. So, Qantas is carrying 2,000 more employees than it needs; what will happen to them when JobKeeper is culled? Boeing, hit by Covid-19 and 737 MAX, will shed 230 advanced manufacturing jobs once JobKeeper is done. Universities are scrambling to negotiate pay cuts to defer job losses, but with no JobKeeper support, redundancies are imminent.

These are just the obvious short-term effects. But I worry that the real damage will come later. Australia has prospered, despite its remoteness, from the free flow of people across our borders; as an exporter of business services, as an exporter of medical sciences, as an exporter of tourism and education, as an aspirant centre for advanced manufacturing, and as an importer of educated migrants.

Wheat and iron ore exports may be safe but, for everything else, replacing international travel with Microsoft Teams makes us a little bit less attractive. From here on in, to Australia’s cost, supply chains will be so much easier to manage within the confines of Europe or North America, without us.