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It’s been just over a month now since the Coronavirus flipped our lives upside down.
From having to practice social distancing and getting used to life indoors to continually washing our hands.
It’s clear we are all going to be affected by the coronavirus – something none of us expected a few months ago.
As COVID-19 makes its way around Australia, it’s also bulldozing its way through the economy, slowly infecting various industries.
Many Australians will lose their jobs, others will have their hours curtailed and most businesses will suffer.
ANZ Bank recently released a report for the institutional and private clients giving their updated forecasts on unemployment And which sectors will be hardest-hit.
- ANZ are now forecasting the unemployment rate to peak at 9.5% in the second quarter of 2020
- The JobKeeper payment will play a big part in keeping more workers employed and flattening the peak in the unemployment rate. But ANZ’s updated forecasts have also been shaped by new information on industry impacts and additional policy
- Employment losses will still be significant – around 700,000 in Q2 – as will cuts to household incomes. Some businesses will not reopen and some that do reopen will have reduced
- International tourism and education will likely take longer to recover. As they account for around a quarter of every tourism dollar spent in Australia, this poses a risk for some of the 666,000 workers in
- There is still a high degree of uncertainty in these
- We outline some of the potential impacts of COVID-19 on the ABS’s labour market statistics in the
The unemployment rate could still hit a 26-year high
ANZ are now forecasting the unemployment rate to peak at 9.5% in Q2, up from its current 5.1%.
That means 700,000 workers could lose their jobs and the number of unemployed could rise to around 1.3m.
Underemployment will increase sharply, as hours worked tumble.
Many households will see substantial cuts to incomes.
This forecast update is based on a scenario broadly similar to that which underpinned our previous forecasts: a widespread shutdown of activity of around six weeks, followed by a progressive lifting of restrictions.
There is still a high degree of uncertainty in these forecasts.
The biggest policy change since our last forecast has been the announcement of the $130b JobKeeper package on 30 March.
The Government will make a flat $1,500 per fortnight JobKeeper payment available to employers for each employee, if the business’s turnover has declined 30% or more due to COVID-19.
For businesses with an annual turnover of AUD1bn or more, they would need a self-assessed reduction in revenue of 50% or more to be eligible.
Figure 1. We are now forecasting unemployment to peak at 9.5% in Q2
Given that the JobKeeper payment is in place for six months and will act as a “safety net”, a longer shutdown of less severity than we have assumed could result in a broadly similar outcome for the labour market.
The hardest part
This is despite many casual workers in these industries being ineligible for JobKeeper (see below).
These three industries have the highest estimated shares of workers earning less than $1,600 per fortnight (Figure 2).
Transport, wholesale trade and education are among other industries that could also see significant reductions in job losses, compared to the scenario without the JobKeeper package.
Figure 2.Workers earning less than $1,600 per fortnight in their main job
But although the peak in unemployment will be reduced, there will still be substantial cuts to incomes.
Temporary changes to the Fair Work Act will allow employers to reduce workers’ hours to minimise their out-of-pocket costs (ie the difference between the JobKeeper payment and the paid wage).
Some workers that would have become unemployed will instead be underemployed – which we argue is a better outcome.
But some workers that would have been kept on full-time previously will be reduced to part-time, lowering their income and spending power.
Many workers are ineligible for JobKeeper, including:
- An estimated 950,000 casuals who have been with their current employer for less than 12 months. Around 40% are in retail, accommodation and food services, and arts and
- Around 140,000 temporary skilled visa holders, along with working holiday and temporary graduate visa
- Workers in businesses where turnover falls substantially but not by the 30% threshold.
Although JobKeeper will keep many workers in employment and flatten the peak in unemployment, ANZ think the recovery will be slow.
ANZ expect the unemployment rate to fall to 8% by Q4 2020 and around 7% by Q4 2021.
The post-COVID-19 world will likely look quite different.
Given the cuts in employment and income, along with the amount of debt held by Australian households, we could see quite a change in consumer behaviour.
After an initial rebound in demand for goods and services as restrictions lift, household spending growth may moderate, limiting labour demand growth in turn.
Some businesses may be unable to recover, particularly in sectors that were already struggling.
The end of the JobKeeper payment period (on 27 September) may be the final straw for some businesses, resulting in permanent closures.
Other businesses may reopen with reduced capacity.
This would put a lid on improvements in employment.
But ANZ cannot rule out the JobKeeper payment being extended, if the pandemic is still having a severe impact on the economy.
International tourism and education are likely to take the longest to recover.
On current trajectories, it is possible that Australia could experience a smaller and shorter health and economic impact than some of our major trading partners.
Australia’s borders are likely to stay closed for a longer period than the domestic shutdown, and external demand may take some time to pick up.
International tourism accounts for around a quarter of every tourism dollar spent in Australia, so this poses a risk for some of the estimated 666,000 workers directly employed in tourism (Figure 3).
A third of these workers are employed in food services.
The accommodation and air, water and other transport industries are most exposed, with 75% and 63% of their respective workforces reliant on tourism.
Figure 3. 666,000 workers are in direct tourism employment
Given that domestic tourism accounts for the bulk of tourism expenditure in Australia, though, many of these workers will be needed once domestic travel resumes.
Still, domestic tourism may pick up more slowly than other parts of the economy, if some internal borders remain closed or restrictions on movement over longer distances are progressively lifted.
Tourism is a sector that ANZ think could face particularly challenging conditions over a longer period.
Source: ANZ Bank – this information is general in nature, and does not constitute personal financial product advice or take into account your objectives, financial situation or needs.
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