Is this the recession we had to have?

In the early nineties, Paul Keating declared that Australia’s recession was the recession we had to have. For those people that were out of work and struggling to find employment, they no doubt had a very different opinion.  The question for Australia today is arguably the same, is this the recession we had to have? Has the Pandemic forced Australia to naval gaze long enough to understand that manufacturing is severely missing from the country’s productivity capabilities? Has a reliance on China left Australia far too vulnerable to economic diplomacy? Has the framework between government, union and business been stretched so far as to reduce actual outputs whilst putting up significant road blocks in red and green tape? Will we emerge from this recession technologically more capable and prepared to invest more directly into entrepreneurialism? Will the general populace have a greater understanding of those less fortunate than themselves?

Whilst most Australian’s at this point in time will not know anyone who has been impacted by the corona virus regarding their health, they will undoubtedly know many people who have lost their job or people who have been forced to take a reduction in pay and or hours. This recession may well decide how Australian’s embrace the next two decades.

To put this recession into context, during the period between 2015 and 2019 the Australia economy created 1,136,200 new jobs or the equivalent of circa 284,000 jobs per annum. Conservative estimates show that from May 2019 to May 2020, the Australian economy shed 700,800 jobs or almost three years of labour force growth. Had the government not intervened with JobKeeper, the expectation is that well over 1 million people would now be looking for work. As far as recessions go, there was absolutely no surprise Australia’s GDP shrunk by 7.0%, with the real surprise being that it didn’t shrink by significantly more. Again, government stimulus has been well targeted and some would argue quite generous. As a result, much of the JobKeeper and JobSeeker money circulated back into the economy.

The above chart demonstrates which aspects of Australia’s economy have been hit the hardest and highlights that almost 270,000 jobs have been lost from the Accommodation and Food Services sector. These small businesses have been an extraordinarily important part of Australian society, providing jobs for families, students and just about every cross section of community in between. To call these businesses ‘Zombie Businesses’ is both insulting and inappropriate given that most have failed under necessary government intervention which limited their ability to open, the number of people they could serve and the impact of the mobility of the population to go to regional centres. In addition, the closure of offices, or more correctly the reduction of the number of people entering a lift, has also meant that many of those little coffee shops and cafes have been forced to close as well. These were very good little businesses before the pandemic.

At the other end of the spectrum, Healthcare and Social Assistance have grown considerably, and almost equally Financial and Insurance Services. Both of these sectors have been critical in helping households through difficult times, albeit for different reasons. As two of six positive sectors that created a total of 159,500 new jobs, the balance 13 industry sectors saw a cumulative loss of 860,300 jobs in just twelve months.

New South Wales

NSW saw a net loss of 18,800 jobs which is not significant given a workforce of almost 4.1 million in May 2020. This was quite surprising given the closed borders to international travellers and migrants which would typically equate to 80,000 additional persons per annum. So what was propping up the NSW economy? Arguably the closed State borders which would see circa 22,000 people unable to leave the State and an unknown number of expat residents returning home. NSW also demonstrated its capacity to deal with the Ruby Princess outbreak providing greater confidence to the community in large.

Victoria

VIC proved to be quite resilient to the point in time that the data was collected. Up until May, the number of jobs actually grew by 28,300. It is suspected that if the data was available to the end of August, these net gains may well have been lost. However, with an economy that contributes around 25% to the nations GDP, the level of frustration being expressed by the Federal government to the State government is a result of a good news story becoming a bad news story. During this period to May 2020, the residential market, particularly house and land development had remained remarkably robust. The Jobs data provides a very good insight as to why.

Queensland

In many respects, Queenslanders feel like they may have dodged a bullet. There have been no major outbreaks and those occurrences that have occurred, have to date been well contained and trackable. Employment growth has remained almost “even Steven” with 6,800 jobs in the positive over the period of May 2019 to May 2020. The debate around closed borders continues to be had on an almost daily basis with tourism being the real loser which has flowed into many regional centres that get a significant injection of capital from the grey nomads as they migrate north. The author is sure that David Attenborough could probably make a documentary on this seemingly biologically driven trek. Despite the lack of tourism, interstate migrants and international students, the residential sector has remained sound in most sectors, though like everywhere in Australia, there is a noticeable shortage of investors.

The challenge with the recession is how does the economy turn around the red industries to broaden the reliance on the majority of sectors, rather than just a few? Australia has a chance to reinvent some sectors, grow others and support a debate around what our labour force will look like in the years ahead. In part this is being done through the tertiary education sector, where certain degrees have become more affordable whilst others will become more expensive. This however is neither addressing the non-white collar work force nor is it bringing into focus industrial relations. Until this is resolved, it is difficult to see anything but a business as usual model where the same complexities, bureaucracies and disputes that saw almost every aspect of productivity gaining investment stall in the post GFC environment continue to be the brake that derails affordability and diminishes international competitiveness. Whilst this may not be the recession we had to have, it certainly has provided the opportunity to revisit many aspects and expectations of the economy and society, simultaneously.

Matthew Gross | Director