The unprecedented speed and impact of COVID-19 is challenging business models and assumptions in every sector. While Australia's approach to controlling the spread of the coronavirus has been effective so far, the nationwide lockdown and restrictions on movement has and will continue to have a significant impact on the economy.

On budget night in May 2020, Treasurer Josh Frydenberg delivered an economic update, calling current and forecasted economic data "sobering". Experts predict the largest budget deficit in the nation's history.

Professor Gigi Foster, Director of Education at UNSW School of Economics, Gordon Mackenzie, Senior Lecturer, UNSW Business School of Taxation and Business Law, and Professor Pamela Hanrahan, Commercial Law and Regulation, UNSW Business School recently shared their perspectives on the short and long-term economic effects of the coronavirus in the AGSM Leading Through Times of Crisis: The economic impact of COVID-19 webinar, hosted by Professor Nick Wailes, Director AGSM and Deputy Dean UNSW Business School.

What we'll see in the short-term

One of the worrying effects of the coronavirus will undoubtedly be the rise of unemployment and subsequent decline in spending for the next three to six months. This will have a far-reaching global impact according to Professor Foster.

"Our spending power has ripple effects to all of the countries we trade with. And that means businesses will be feeling the pinch all over the world," Professor Foster said.

With many of the world's borders closed, the travel and tourism industry is set to lose over 100 million jobs globally. Professor Foster expects many businesses will have to close across a number of industries, with travel, aviation and sole trader service sectors being hit the hardest.

With the subsequent negative impact on morale, mental health and personal lives, this in turn could reduce productivity and further impact business income.

"When a company's employees are home schooling children, dealing with barking dogs, and maybe have a spouse who is also home on a more continual basis, there will be an increased level of stress in the home, which will impact on their productivity. Overall, I expect these effects will be negative," she says.

Longer-term impacts are cause for concern

Global trade has become more interconnected over the last few decades. While this has brought about a number of significant benefits, it also means the world will feel the effects COVID-19 for a long time to come.

"We have broken many of the trade links that have sustained our luxurious lifestyles for a very long time. Those broken trade links don't just reform – there will be a domino effect for at least the next couple of months. And then it may take much longer for those to improve and get back to business as usual," says Professor Foster.

She is also concerned about the future of Australia's welfare system.

"These longer-run effects on the economy may lead to a lower level of government service provision, because it's crowded out by coronavirus spend."

However, Dr Cassandra Goldie, Adjunct Professor at UNSW and Chief Executive at Australian Council for Social Service, believes this current crisis could be a catalyst for positive change.

"We need to learn our lessons from the past and use the best ideas for our future. It would be a huge mistake to cut back on social security which goes to people who need it, and is spent in the real economy," said Dr Goldie in a recent press release.

Innovation could be another potential casualty of the pandemic – and with it, economic growth. In the US, economists have estimated that 50% of the country's GDP growth is thanks to innovation.

"The consequences of lost research and development, lost investments in innovative new projects that would have been undertaken but for the massive crisis and the big fiscal outlays right now will hurt our economy," says Professor Foster.

A possible silver lining

Learning to operate effectively in a new environment at a moment's notice can also lead to a number of long-term improvements to business operations. Organisations have had to adopt new digital technology to work flexibly and remotely, and this could lead to the introduction of better processes and capabilities in the medium and long term.

"We'll find online efficiencies in flexible, digital workflow. I expect that some new technologies will be adopted, and some less efficient technologies will be shredded, which could be a good thing," says Foster.

Professor Pamela Hanrahan sees this permeating through laws and regulations.

"We've been very slow in Australia to adapt to technology's possibilities. Some of our legislations still require people to sign documents in person, so the government had to move pretty quickly to resolve some technical problems. Hopefully this will push us in a more innovative direction."

Another potential positive impact for Australia's long-term welfare system could be the re-establishment of a national bank – a prospect Professor Foster would welcome.

"Such a bank could take some of the daily business that existing banks do for a large profit, and return more to everyday Australians. But it could also provide a vehicle for delivering fiscal stimulus in future crashes, recessions or crises like this," she says.

Government initiatives to boost growth

In an attempt to boost growth and combat some of the negative effects of COVID-19 on our economy, the Federal Government has introduced a number of initiatives.

Tax initiative such as the JobKeeper, will allow businesses to hold onto employees during the downturn.

"The whole point of this is to keep engaged with the business, so that when people get back to work, then people are still onboard," says Gordon Mackenzie.

A cashflow boost and instant asset write off will give small to medium businesses an additional break, while larger corporates can also use the Business investment initiative to write off 50% of the cost of assets until 30 June 2021.

The government is also working to simplify tax deductions for businesses and individuals.

Professor Hanrahan also highlighted changes to debt-related business law that will help businesses stay afloat for longer.

"The threshold is now $20,000 before creditors can start a winding up process in respect to that company. This ensures that people aren't put into insolvency for relatively small debts. Companies now also have six months to respond to a notice of demand that would otherwise trigger and insolvency process," Hanrahan says.

The current pandemic continues to send shockwaves that will have several short- and long-term ripple effects. And while the coming months will undoubtedly be challenging for many organisations, we may see lasting improvements to business models and the way we work. And that could be a significant silver lining.

To listen to a recording of the AGSM Webinar ‘Leading Through Times of Crisis: The economic impact of COVID-19' and the other webinars in the series, click here.

To find out more about AGSM @ UNSW Business School, click here.