How quickly the sunny days of economic recovery can turn cloudy — ominous, even.
The Prime Minister is now assuring us we’re going to dodge a recession that as of last week no one had even thought was possible. This morning Josh Frydenberg suggested that growth and employment will take a hit in the current quarter thanks to Sydney, Melbourne and Adelaide being in lockdown. We shouldn’t forget that we saw a bigger than expected 1.8% slide in retail sales in June, thanks to the earlier Victorian lockdown and the lockdown that started in NSW near the end of the month. That will have a small impact on growth in the June quarter too.
We’re seeing layoffs and reduced hours in retail, with shoe retailer Accent Group telling staff it had already used up the $9.6 million in old JobKeeper funds that had enabled it to keep staffing levels steady during the previous lockdowns and clamps. Qantas is in the middle of 6000 layoffs as well. And now the extended uncertainty of, in particular, lockdown in Sydney where the first three weeks of Gladys Berejiklian’s patented lockdown-lite had little impact on reducing numbers.
New support payments from the federal government might tide people over but don’t prevent them losing their jobs — the kind of unmooring of workers that JobKeeper was designed, rightly, to prevent. The long queues outside Centrelink offices in Sydney reflect that we’re in a different world compared to 2020.
Economists agree there’ll be no recession, but this quarter will be bad. On Tuesday (before the South Australian lockdown) Westpac forecast a 0.7% fall for the three months to September, but a 2.6% rebound in the December quarter — though that’s assuming NSW and Victoria emerge quickly. Yesterday AMP Chief Economist Shane Oliver also changed his forecast from a flat reading (which was already a downgrade) for this quarter to a slide of 0.7%.
But the real story is that these new lockdowns will end Reserve Bank hopes to boost wages and make it harder to lift inflation by 2024.
This week’s minutes from the RBA’s July monetary policy meeting hint at desperation about the prospect of wages growth.
Information from the Bank’s liaison program suggested that firms were not expecting to make up for the period of wage freezes earlier in the pandemic. Further, the outlook for public sector wages, and rates of wages growth featuring in new enterprise bargaining agreements, suggested aggregate wage outcomes were unlikely to increase materially beyond pre-pandemic rates in coming quarters.
That’s because, as RBA governor Philip Lowe has explained, businesses are still obsessed with preventing wage rises to keep costs down even as labour markets tighten. That’s why Oliver now forecasts the RBA will delay policy moves planned for later in the year. He still anticipates “the first rate hike to come in 2023 albeit it may now be later in the year rather than at the start of the year”.
Then there’s the issue of migration. Big business is still clamouring for borders to be reopened so that they can use foreign labour to offset pressure to pay Australians more. The call from Commonwealth Bank chair Catherine Livingstone (we missed the memo about how the Commonwealth Bank gets to lecture anyone about anything since the royal commission) to set a timeline for re-opening borders is all about ensuring worried businesses they can hold off paying Australians higher wages — especially in industries where foreign workers can be easily exploited.
With that sort of mentality, Lowe’s ambition for wage rises to exceed the stagnation of the pre-pandemic period looks forlorn.
This article was first published by Crikey.