Paper on COVID-19, the Recession and Employment 15 August, 2020

sourced from www.jobmarkets.com.au

                   Paper on COVID-19,
         the Recession and Employment
                      15 August, 2020

                    written by Rodney Stinson,
                      Labour Market Analyst,
                          Yorkcross Pty Ltd

          This paper is provided primarily for the information
      of professionals obtaining reports from the 2020-2021 issue
               of the Job Markets Australia online database.
            It outlines some of the framework utilized in the
              preparation of the employment outlook fields
           for more than 1,000 occupations in the database.
    The entries for those fields were updated in late August, 2020,
and form part of version 1.2 of the 2021-21 issue of the online database.

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COVID-19, the Recession and Employment – August, 2020 Update

By 31 July, 2020 Australia’s generally sterling success in containing the COVID-19 pandemic was
clearly at risk. Case numbers and deaths in Victoria were mounting, bringing a return to tighter
restrictions, leading to a stage 4 lockdown in Melbourne. Many of the assumptions and
assessments of the Federal government’s mini-budget of 23 July regarding the pandemic locally
have now been undercut. Equally troubling is its foreshadowing of changes in the level and
direction of fiscal commitment that portend, from September, 2020, the withdrawal of much
needed support to bolster domestic demand and underpin employment and vulnerable
enterprises. The support so far provided over 2020 has helped to shore up the economy as a
whole and retained many businesses and jobs that would otherwise have been lost.

The Treasurer’s introduction of the mini-budget and his explanations in Parliament about it drew
on his “Economic and Fiscal Update, July 2020” statement, which can be downloaded from
https://budget.gov.au/2020-efu/ economic-fiscal-update.htm -- accessed on 31 July, 2020.

The statement contains “key assumptions” pertaining to what it calls “the health crisis”, and
these “underpin” its “economic forecasts”. Unfortunately, some assumptions seem to have been
drafted some time ago, judging from the reference, for instance, to the timing of the lifting of
restrictions which assumes what should now be known as to what did or did not happen from
mid-May to mid-June (step 1) and from mid-June to mid-July (step 2) [see Box 2.1, page 28].
Those relating to Victoria were no longer sustainable less than a week after the Treasurer’s mini-
budget statement [see preceding source].

On 29 July, the Prime Minister described what is occurring as a “Victorian wave”, not a second
wave. Yet the new clusters in New South Wales, the primary one stemming from someone
travelling from Victoria, are numerous and geographically widespread, and have been bolstered
by other returnees and travellers from Victoria. The wave has hit two States. Of the other States,
Queensland has had its own recent outbreaks, also stemming originally from travellers returning
from Victoria. By early August, similar outbreaks were apparent elsewhere. Taken as a whole,
and with the case numbers and clusters increasing in the named States, these developments
indicate, in my opinion, that Australia has entered a second wave of the pandemic. This will
further delay the hoped-for economic recovery and a return to something like normality – that
is, approaching how things were before the onset of the pandemic globally and its arrival in
Australia.

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The Treasurer expects the economic recovery “to be relatively fast by historical standards” [see
his statement, page 27], which is not terribly reassuring given the magnitude of the current
recession and the corrosive effects of the 1982-83 and 1990-91 recessions, which were extensive
and prolonged, extending to elevated unemployment for five or more years. Nor is it reassuring
to have this optimism framed by broad caveats:

        “As is the case globally, the evolution of the virus is the greatest uncertainty for the
        domestic outlook (Box 2.1 contains key assumptions). Additional significant outbreaks in
        Australia, or a noticeable worsening of existing outbreaks, would lead to a further
        contraction in economic activity and employment, especially if accompanied by the
        reintroduction of containment measures (Box 2.2). Even if Australia is able to prevent a
        major regression in health outcomes as containment measures are relaxed, further
        outbreaks in our major trading partners also pose a risk to Australia’s recovery.”

        “There is also significant uncertainty around the pace and shape of the recovery, given
        the unprecedented nature of this crisis. The economic recovery is forecast to be
        relatively fast by historical standards. The economy could recover more quickly than
        forecast if firms rapidly adjust to the new environment and household spending returns
        to usual levels. However, the recovery could be more protracted if confidence remains
        subdued or more people than expected lose their jobs, including from changes in the
        structure of the economy or a larger-than-expected wave of business closures. Structural
        change is a significant source of uncertainty; the health and economic shock has
        changed many aspects of the way people live, including the way people work, shop and
        socialise, and it is unclear how large and persistent some of these changes will be.”
        [Excerpt from the Treasurer’s statement, page 27]

“The economy could recover more quickly than forecast if firms rapidly adjust to the new
environment and household spending returns to usual levels” is the only up-spin caveat. Such
magical turnrounds are omitted from the second wave scenario portrayed in the Treasurer’s
statement [see Box 2.1, pages 29 and 30]. In any case, the scenario is moot, as it has, on my
reading, already been surpassed by the reality.

This short paper will not attempt to give a rounded critique of the Treasurer’s statement.
Instead, it records significant impediments to achieving his unrealistic expectations for the
domestic and global economies, for the containment of the pandemic’s second wave in

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Australia, and for the quick restoration of jobs already lost or that will be lost in 2020-2021, as
well as the delivery of focused aid to assist the recovery of industries most at risk.

The National Accounts showing how the Australian economy fared in the June quarter will not
be released until 2 September, 2020. A much bigger drop in GDP than the March quarter’s 0.3%
is likely, making two consecutive quarters of negative growth and confirming the economy is in a
recession. The mini-budget expects GDP to fall by 7.0% in the June quarter and rise by 1.5% in
the September quarter, producing an overall GDP fall of 3.75% in 2020, followed by an increase
of 2.5% in 2021 [Treasurer’s statement, pages 17 and 18]. The strength of the Federal
government’s forecast economic rebound remains improbable for various reasons.

Whereas the mini-budget forecasts unemployment will reach 9.25% in December, NAB’s chief
economist expects it will increase into the March quarter, 2021, but by how much he did not say
[see preceding source]. The mini-budget gives an unemployment rate of 8.75% in the June
quarter, 2021 [for the mini-budget forecasts, see the Treasurer’s statement Table 1.2, page 3].
The Reserve Bank’s latest forecast is that the unemployment rate will reach 10.0% by December,
2020 and gradually fall to 7.0% over the next two years. The government has since
acknowledged the higher figure of 10.0% [“Victorian COVID restrictions will push unemployment
to 10 per cent, PM warns”, Sydney Morning Herald, August 6, online at www.smh.com.au] and
suggested the effective rate, which includes discouraged job seekers and those working nil
hours, will be 13.0% by June, 2021 [“PM’s $15bn worker lifeline”, The Australian, August 7, 2020,
page 1].

The spread of the pandemic’s second wave, the Melbourne lockdown and return to greater
restrictions in regional Victoria, and the eviscerating effects of the recession on many small and
large businesses will cause further job losses. These, in turn, will reduce consumer confidence
and spending, leading to heightened pressure on private sector spending generally and
investment particularly. The National Australia Bank’s (NAB) chief economist thinks there is a
50:50 chance the economy will decline in the September quarter [see www.abc.net.au, online
news, “Melbourne lockdown could cause the coronavirus recession to last all year”, August 5,
2020]. The mini-budget’s foreshadowed tightening and/or lessening of JobKeeper, JobSeeker
and other special transfer payments from the end of September, if realised, will worsen a
contraction of GDP in the December quarter. The Grattan Institute’s Danielle Wood sees that as
even more likely now [see preceding source]. The size of the Federal government’s
foreshadowed withdrawal equates to about 10.0% of quarterly GDP in the December quarter,

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according to the ANZ bank’s economics team [Ross Gittens, “Morrison’s not doing nearly enough
to secure out future”, Sydney Morning Herald, August 1-2, 2020, page 7].

The payroll-based figures for the week ending 25 July record job losses not just in Victoria but in
all other States and Territories. Further falls are likely across most jurisdictions when the payroll-
based figures for the week ending 8 August when they are released on 26 August. [Refer to the
Jobs and Wages Data papers on www.jobmarkets.com.au.] The return to hard borders between
NSW and Victoria and between them and Queensland occurred in early August, and that, along
with closure of other State borders, will intensify the negative impact of the onset of the
pandemic’s second wave and the cumulative adverse effects of the prolonged restrictions and
disruptions in the first half of 2020.

The difficulties for many business and households are now compounding. The value of their
deferred loan repayments at the end of June, 2020 was $274 billion or about 10.0% of total
loans, according to the Australian Prudential Regulation Authority; for instance, about 17.0% of
small business loans and just over 10.0% of housing loans were subject to deferment, amounting
to $55 billion and $195 billion respectively [“$274bn of loans put on hold”, The Australian,
August 5, 2020, page 16]. The same source referred to the banks having extended deferred loan
repayments for six months from March and then, recently, extending that for another four
months (basically to February, 2021). The average delay in invoice payments rose to 49 days in
June (or triple that of a year earlier), according to CreditorWatch, while a Morgan Stanley survey
of those holding mortgages found about 55.0% have received some income support, mostly
from the government, and for 15.0% that was JobSeeker [“RBA to the rescue”, The Australian,
August 1-2, 2020, pages 23 and 35]. The so-called zombie businesses, propped up from
insolvency by JobKeeper and related payments, are expected to begin folding once these
payments are ended or diminished in September, when trading while insolvent also reverts to
being an offence for company directors [see preceding source].

In his trademark succinct way, Ross Gittens noted that the Reserve Bank has already extensively
used monetary policy to encourage borrowing and spending by cutting interest rates, leaving
fiscal policy – that is, the budget – “as the only instrument left for the government to use to
support the economy during the recession and then to stimulate growth” [“Weak inflation: it’s
the demand side, stupid”, Sydney Morning Herald, August 3, 2020, page 21]. In another article,
he quotes approvingly Danielle Wood’s view that the Federal government should be planning to
“create jobs and meet social needs”, examples of which are social housing, mental health

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service, tutoring for disadvantaged children to catch up after lost learning during the pandemic,
boosting the childcare subsidy (supporting family income and workforce participation,
renewable energy projects, fixing aged care deficiencies and so on [“Morrison’s not doing nearly
enough to secure our future”, Sydney Morning Herald, August, 1-2, 2020, page 7]. Higher
spending on other infrastructure like public transport would also stimulate the building and
construction sector and have direct flow-on benefits economically. Vital economic boosts from
international students arriving to study at Australian universities and other education venues
may not occur until mid or even late 2021, and those from inbound tourism even later, in view of
the pandemic’s widespread second wave in source countries and the question mark over
containment of Australia’s own second wave.

A bright spot for the Australian economy is the strong lift in exports to China over the six months
to June, principally iron ore, grain and wool, which offset the fall in coking coal; however, the
value of exports elsewhere fell more than the China uplift [“Trade with China surges as rest of
world falls”, Sydney Morning Herald, August 5, 2020, page 11]. In its World Economic Outlook
report for June, 2020 the International Monetary Fund (IMF) states: “Global growth is projected
at minus 4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic
Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in
the first half of 2020 than anticipated, and the recovery is projected to be more gradual than
previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave
2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January
2020” [see www.imf.org/en/Publications/WEO]. The mini-budget basically follows those broad
brush strokes, bit it has a realistic portrayal of the uncertainties about the strength and timing of
recovery in the global economy and the potential for the pandemic to worsen internationally
[see Treasurer’s statement, page 23]. Although China’s economy is powering up, the contraction
in the global economy will be 5.2% in 2020, according to the World Bank [see
www.worldbank.org/en/news/press-release/2020/06/08/ Accessed on August 7, 2020].

In my opinion, the prospects for sustaining even a modest pick-up in the global economy over
2021 remain poor and the IMF’s forecast of 5.4% global growth in 2021 is unlikely to be realised.

COVID-19 Containment

Targeted suppression of the COVID-19 coronavirus, not its elimination, remains the objective of
the Federal and State governments. If not suppression, containment of the pandemic looked to
have been achieved nationally after the first wave subsided in Australia in April and May. Re-

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openings across industry sectors, albeit with modified but tight controls on social distancing etc,
and the scaling back of many other restrictions led to a lift in economic activity and the
restoration of some of the lost jobs by June, 2020. However, the mid-year emergence of high
case numbers and increasing deaths in Victoria led to that State going into lockdown for a
minimum of six weeks and to greater community transmission in NSW and, to a lesser degree,
other jurisdictions.

The Australian Health Protection Principal Committee (AHPPC) has issued a statement regarding
the sombre outlook:

“On current trends, it is likely that a return to a manageable number of daily cases would take
months. Without further action, risks include the further spread of infections into regional
Victoria and to other jurisdictions; ongoing complex outbreaks with an unacceptable level of
illness and death; and an unsustainable duration of Victorian stage 3 restrictions leading to
lengthy social and economic disruption. The continued situation in Victoria has national
implications.

The AHPPC support Victoria’s announcement that restrictions will be intensified and broadened
geographically. This means implementing more extensive restrictions in areas with community
transmission and some further restrictions in regional Victoria. All work that can be performed
remotely must be done so. Permitted workplaces should enhance their COVID-safe operations.
Testing, case investigation, contact notification and supports to facilitate isolation and
quarantine should continue to be strengthened. Of particular importance, people who are
confirmed cases must remain in isolation until advised otherwise by health authorities.

Ultimately, it is the Victorian people who are key to preventing transmission. While compliance
checks and enforcement are necessary, widespread adherence requires clear messaging and
community engagement. By further limiting activities, movement and interactions of people;
enhancing personal hygiene (including hand hygiene and wearing masks); staying home if
unwell; seeking testing and isolating until results are available; and following public health
directions, case numbers should decline substantially over coming weeks.”

[Source: www.health.gov.au/news/australian-health-protection-principal-committee-ahppc-
expression-of-support-for-additional-measures-to-improve-the-current-state-of-the-covid-19-
outbreak-in-victoria Accessed on August 6, 2020.]

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AHPPC’s expectations regarding compliance in the general population may be too hopeful,
considering recent news reports about the numerous outbreaks in community transmission,
many of them arising from a failure to remain in quarantine or to self-isolate for the required
time, or from not meeting other stipulated conditions. For example, one in four people who
were meant to be in self-isolation, owing to their being a close contact or having tested positive
for the coronavirus, were missing from their home when official checks were done in Victoria in
July [“Quarter of those in isolation go AWOL”, The Australian, August 1-2, 2020,page 6]. The
social distancing requirements are increasingly being flouted, not just in overcrowded functions,
shopping venues, workplaces, and activities where alcohol is being consumed, but also in family
and sporting gatherings. Those who have acquired the coronavirus may be asymptotic or have
negligible symptoms that do not restrict their working or socialising, and it is thought that they
are behind the hard-to-trace or unknown methods of transmission, within a suburb, a city, a
region, a State or among States.

The employment losses by industry, age, and sex, nationally and by State/Territory, are shown in
the Jobs and Wages Tables, downloadable from: http://www.jobmarkets.com.au/Covid-19.
Updated tables will be added soon after the Bureau releases new jobs and wages data. Please
note: the jobs and wages data are sourced from the ATO’s payroll data for businesses that are
Single Touch Payroll enabled. Almost 7.0% of employed persons hold multiple jobs, especially,
but not only, casuals.