26 Mar Economic Impact of COVID-19

This is really the only question that our clients are asking of us at the moment.  It has become our focus too.

Australia’s federal, state and local governments are now designing and delivering the largest peace-time economic stimulus packages in our nation’s history.  Our role will be to help our clients understand the implications of COVID-19 at region and industry sector levels, to assist in guiding policy and directing resources to where they are most urgently required.

Due to the complexity of staged closures and the enforced shutdown of various businesses, this is a complex undertaking.  There are many factors changing on a daily basis that impact the economic base of a region.

How can we support your organisation right now?

We understand that local and state governments require tools to assist in quantifying the impacts of COVID-19 as soon as possible. The following is the first of what will be many tools, resources, data and methodologies to assist you to measure and estimate the socio-economic impacts of COVID-19 for your region, its businesses and workers. As we are seeing changes on a weekly basis, any updates in modelling impacts will be made available to you.

There are two distinct scenarios which we can apply to the ‘base case’, that is, what your economy looked like prior to the onset of COVID-19:

1. Tourism impact – measuring the impact of the loss of Tourism to your economy as a result of stopping all international flights and 60% of domestic flights, coupled with social distancing and increased closure of state borders.
2. Social shutdown policy – the national closure of bars, pubs, clubs, casinos, indoor sports venues, gyms and religious venues to control coronavirus is being enforced

The following provides an initial guide to step you through the process, as with everything REMPLAN, please do not hesitate to contact the team if you have any questions or would like assistance in navigating your through the modelling.

1. COVID-19 Economic Impact Analysis – Tourism 

Tourism is an amalgam of activities across various industry sectors such as retail, accommodation and food services, and arts & recreation services.   It is not so much an industry but rather a reflection of expenditure on goods and services by visitors.

Tourism definition: People spending money in places where they don’t live or work.

COVID-19 has seen visitation and the associated expenditure largely grind to a halt.  Therefore, if we understand the value that tourism was delivering to our economy, then we can also understand the direct negative impacts when this visitor expenditure is missing.

Step 1 – Define the Tourism Baseline

In the REMPLAN Tourism Analysis Module, the Tourism Output – Breakdown report, lists the industry sectors, specific to your region that are supporting tourism activity:

For the above example for Yarra Ranges you can see that Tourism was estimated to contribute $607.5 million.

Step 2 – Save the Data

Select the ‘save’ icon and save as an excel file….

See following example of excel table:

Step 3 – Model the Impacts

With the excel table, change each value to the negative (tip: multiply by -1), and copy the direct output data from the spreadsheet and paste into the impacts tab – please note as a second step, you will have to expand the ‘Rental, Hiring & Real Estate’ industry sector, and then manually add ‘Ownership of Dwellings’.

REMPLAN automatically models the negative direct and flow on impacts as a result of the disruption.

When the direct decrease in tourism output of $607.502 million is modelled for the economy, it is estimated that the corresponding demand for local intermediate goods and services would decrease by an additional $247.330 million. These are the supply-chain effects, which include multiple rounds of flow-on effects, as servicing sectors will now decrease their own output and demand for local goods and services in response to the loss of tourism activity in the economy.

The decreases in direct and indirect output will result in the loss of jobs across the economy. Corresponding to this change in employment would be a decrease in the value of total wages and salaries paid to workers. Typically, a proportion of these wages and salaries are spent on consumption and a proportion of this expenditure is captured in the local economy. The loss in the consumption effects under this scenario are estimated to be an additional $165.009 million.

It is important to note that the negative consumption impacts are likely to be partially mitigated by the temporary doubling of unemployment payments.

Total output, including all direct, supply-chain and consumption effects is estimated to decrease by up to $1,019.841 million, or more than $1 billion. The following table provides a summary of the loss of Tourism modelled for the local economy.

Impact Summary

Note, Impacts are calculated over a 12-month period. The results of this initial round of modelling estimates the impacts on output from the loss of industry sectors that support tourism in the region.

2. Social Shutdown Policy

In addition to the tourism impacts modelled above, the federal and state governments’ social shutdown policies are having further implications for the economy.

To slow the rate of transmission of COVID-19 our governments are enforcing a national closure of:

1. Food & Beverage (includes cafes, restaurants, catering services, pubs, taverns, clubs etc)
2. Accommodation
3. Sports & Recreation (including gyms, amusement parks, etc)
4. Gambling (specifically related to Casino’s and sport)
5. Religious Venues.

Each region will have specific sensitivities across the respective industry sectors above, and the size of the workforce in each of these sectors that are experiencing job losses will also have flow on supply chain impacts.

Apply REMPLAN’s Impacts module to estimate the direct and indirect (flow-on) implications for your economy of industry sector shutdowns.

For example, if Food & Beverage Services providers in your region advise that their revenues have decreased by 75 percent under the transition to takeaway only service, simply enter -75% under ‘Direct Change Output’ in the cell that corresponds to the ‘Food & Beverage Services’ section.  Please refer to the example screenshot below.

The following scenario illustrates the impact of the loss of revenue, or jobs against the specific industry sectors:

Based on the above example impact scenario, REMPLAN estimates a direct loss of 40,939 jobs (16.5% of total regional employment). When combined with the flow on supply chain and consumption effects, the total job losses are in the order 60,000.

Under the modelled example scenario the total annualised estimated impact on the region’s business and industry output is estimated to be -$11.378 billion, and Gross Regional Product (GRP) is estimated to decrease by more than $5.5 billion.

Again, please note that this article is the first of a series of what will be many tools, resources, data and methodologies to assist you to measure and estimate the socio-economic impacts of COVID-19.

Need some help?  Please call 1300 737 443

Not a REMPLAN client?  Please contact us anyway, everything is different at the moment and as much as is reasonable, we will make resources available to Australian government agencies and relevant NGOs over this period.

Kind regards,
The REMPLAN team

www.remplan.com.au