Australia has navigated the COVID-19 pandemic and is now in better economic shape than most countries due to a two-pronged strategy.
First, we quickly got the virus largely under control – reflecting the reality it would have been impossible to have a properly functioning economy in the face of an out-of-control epidemic. Second, we had key economic support measures, most notably JobKeeper and JobSeeker.
But with those measures ending, and Australia’s vaccination rollout only just beginning – and proceeding at half the pace of the US, UK and other European nations – the economy is still nine to 12 months from being able to truly open up.
Many sectors stuck in 2020 mode
JobKeeper and JobSeeker were always designed to be transitory measures – a way to weather the crisis. Rather than ending these measures abruptly, the federal government wisely tapered them.
Reasonable minds can differ about the timing and the extent of that taper. I (and others) have criticised the federal government for doing so too quickly. It is unwise to cut back fiscal support prematurely when accommodative monetary policy – through 0.1% short-term and three-year interest rates – is doing all the work it can.
But the economy is still far from fully recovered. As we wait to achieve widespread vaccination, sectors such as hospitality, tourism, higher education and many more are stuck in 2020 mode. Restaurants and other venues are operating at reduced capacity. Domestic tourism remains dramatically reduced from pre-pandemic levels. International students cannot return to Australia while our international borders are (rightly) closed. The list goes on.
Will unemployment spike?
Next week, with the end of JobKeeper, a new phase of the fiscal-tapering experiment begins.
Economic output is still below what it was pre-pandemic. The unemployment rate has fallen (from its peak of 7.5% last July) to 5.8%, better than some expected but still way more than the 3.5%-4.0% likely required to achieve “full employment” and get wages growing again.
Australia’s unemployment rate
- ^ proceeding at half the pace (www.afr.com)
- ^ Grattan on Friday: Morrison grapples with slow vaccine rollout, end of JobKeeper and ministerial crises (theconversation.com)
- ^ reduced capacity (www.nsw.gov.au)
- ^ dramatically reduced from pre-pandemic levels (home.kpmg)
- ^ to 5.8% (www.abs.gov.au)
- ^ ABS labour force statistics, February 2021 (www.abs.gov.au)
- ^ CC BY-NC (creativecommons.org)
- ^ 100,000 to 150,000 jobs (thenewdaily.com.au)
- ^ about 110,000 jobs (thenewdaily.com.au)
- ^ having been added in recent times (www.abs.gov.au)
- ^ Vital Signs: we'll never cut unemployment to 0%, but less than 4% should be our goal (theconversation.com)
- ^ Marginal advantage: a whiff of pork in the government's great tourist ticket lottery (theconversation.com)
Authors: Richard Holden, Professor of Economics, UNSW