Australia’s official unemployment rate will peak at 9.25% over the December quarter, as Treasurer Josh Frydenberg warns small businesses to prepare for an extended economic downturn.
Delivering their highly anticipated economic update on Thursday, Frydenberg and Finance Minister Mathias Cormann outlined a set of sobering economic predictions amid the COVID-19 pandemic.
Australia’s inflation-adjusted gross domestic product (GDP) is expected to fall 2.5% in 2020-21, and by 7.5% in the June quarter alone, as the country prepares for its first recession in almost 30 years.
“Australia is experiencing a health and economic crisis like nothing we’ve seen in the last 100 years,” Frydenberg said.
“Our economy has taken a big hit, and there are many challenges we confront, we can see the mountain ahead and Australia begins the climb.”
Treasury expects the headline unemployment rate will peak heading into Christmas, before labour market conditions improve slightly, which will see unemployment round out 2020-21 at 8.75%.
In other words, Treasury expects a 3.6% increase in the unemployment rate through to June 2021 from the 5.1% recorded in February before the COVID-19 pandemic.
Over that time, real wage growth will flat line, expected to grow just 1.25% in nominal terms.
The forecasts come days after the federal government unveiled an extension of the JobKeeper wage subsidy program through to March next year, albeit with lower payments and tighter eligibility rules.
Those tighter rules will kick millions of workers off the program by Christmas, just as Treasury expects unemployment to peak, although political scrutiny continues to focus on increasing levels of Commonwealth debt.
Treasury expects to book a $85.8 billion budget deficit in 2019-20 and a $184.5 billion deficit in 2020-21; both Frydenberg and Cormann remain sensitive to political concerns about debt levels.
The paring back of the JobKeeper and JobSeeker programs have been characterised as “fiscally responsible”, despite the prospect of increasing underutilisation of labour across the economy.
As government spending is cut back and unemployment increases, the consumer price index is expected to fall 1.25% in 2019-20, before increasing just 1.25% in 2020-21.
Frydenberg sought to couch the somber figures against the backdrop of international economic downturn as other developed economies such as France and the United States brace for even larger declines in real GDP over 2020-21.
“Australia’s performance is a lot better than what we’re seeing around the world,” the Treasurer said.
Frydenberg claimed the 9.25% peak in unemployment expected in December would have been upwards of 5% worse in the absence of billions of dollars of fiscal support injected into the economy.
“The government’s actions have saved 700,000 jobs,” Frydenberg claimed.
But the Commonwealth forecasts remain shrouded in uncertianty, particularly as Victoria deals with a second wave of coronavirus infections.
Treasury forecasts assume Victoria’s second lockdown will last six weeks, but yesterday Premier Daniel Andrews said stage three stay at home measures may need to be extended without a dramatic improvement in compliance with public health rules.
“The economic devastation caused by coronavirus is simply eye-watering,” Victorian Treasurer Tim Pallas said on Thursday.
Meanwhile, the retail sector continued its recovery in June. Figures published by the Australian Bureau of Statistics (ABS) on Wednesday reveal retail spending rose 2.4% last month, following a 7.2% rise in May.
Most key categories recorded month-on-month increases in spending, with cafes, restaurants and takeaway food services up 20% in June on last month.
However, both restaurants and clothing, footwear and personal accessories remain well down in annual terms, despite the broader sector finding growth year-on-year, up 14% on June 2019.