One million Australians to lose their jobs by November

The coronavirus pandemic and subsequent economic shutdown will see more than 1 million Australians lose their jobs by November, new analysis suggests.

Figures released by the Bankwest Curtin Economics Centre on Tuesday reveal Australia’s unemployment rate will rocket from 5.1 per cent past the 1992 high of 11.1 per cent as quickly as August before hitting 12.7 per cent in May 2021, the highest level since current unemployment reporting began in 1978.

People line up at Centrelink in Perth this week.Credit:Sharon Smith.

That means by November, 1 million will be out of work, on top of the existing 700,000 unemployed Australians. State by state New South Wales would be the hardest hit with more than 350,000 job losses followed by Victoria with 277,000.

The figures were derived by drilling down to impacts at nearly a job-by-job basis.

BCEC principal research fellow Rebecca Cassells admitted they took a more conservative approach than other projections but said worse losses were likely. Minister for Government Services Stuart Robert claimed "hundreds of thousands, maybe a million" people lost their jobs on Monday night alone as virus directives ramped up.

Professor Cassells said the COVID-19 fight could cost nearly 450,000 jobs in hospitality, entertainment, tourism and personal services by August 2021 while second-round impacts would be felt more broadly.

“We can expect to see a downturn in retail sales (excluding supermarkets) over the coming weeks,” she said.

“Households will start tightening their pockets and look to reduce spending in other areas, anticipating further job losses or reduced hours and income … this will have a flow-on effect to other sectors.”

After hospitality, BCEC predicted arts and recreation, construction and transport would be next hardest-hit sectors, with more than 100,000 job losses each over the next 18 months.

The social-isolation-driven shutdown of businesses was already straining government welfare services, which are struggling to process requests for boosted financial support payments.

Across the country lines of newly unemployed have snaked around bricks and mortar Centrelinks since Monday while Mr Robert said 2.8 million people accessed the website on Wednesday alone.

Professor Cassells said the government’s $550 weekly boost to jobseeker and student assistance payments was a reasonable safety net for workers over the next six months, but for many, it would still mean significant drops in income.

“The most important response by the government now is to take action to reduce activities that will increase the spread of the virus. This will necessarily see demand fall. And we need demand to fall to protect lives in the short-term,” she said.

The ASX is currently awash with companies revoking guidance estimates for the 2019-20 financial year and retailers announcing they were shutting stores.

On Tuesday, listed jewellery giant Michael Hill announced it was shutting its stores due to the pandemic, followed on Wednesday by Accent Group, the retailer behind brands such as The Athlete’s Foot and Hype DC.

Professor Cassells said businesses would inevitably fail thanks to a collapse in investment and consumer confidence and the only way to stage a decent recovery was the right kind of stimulus and, more importantly, an end to the virus.

“When we’re at the point where we feel comfortable we have the virus under control that is the time to really come in hard with a real fiscal stimulus package with infrastructure projects,” she said.

“I think that is what the government will already be planning to do but it is really dependent on how quickly they can get the virus under control.

“It will take something like getting a vaccine or some sort of medication that is going to really reduce the risk of death that people will feel like they can put their heads back up."

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One minute we’re Back in Black, next there’s loose talk of recession

For most of last year, people kept asking me if our slowing economy was headed for recession. I always replied that we weren’t, but that our chronic weakness left us exposed to any adverse shock.

Turns out we’ve been hit by two. According to Treasury’s estimates, the bushfires will subtract 0.2 percentage points from whatever growth we get from other sources in the present March quarter, and the response to the coronavirus outbreak will subtract a further “at least 0.5 percentage points”.

With just three weeks of March quarter left to run, it’s clear the coronavirus response will also subtract from growth in the June quarter. By how much? Showing better judgment and greater experience than his political masters, Treasury secretary Dr Steven Kennedy told Senate Estimates on Thursday that it would be “unhelpful” to speculate. True.

Scott Morrison has offered the states a 50/50 coronavirus funding deal. Credit:Alex Ellinghausen

Had he been paying attention – or just been willing to meet the former fire chiefs – Scott Morrison had plenty of reason to expect a bad, economy-damaging bushfire season, but he asks us to put up our hand if we expected the coronavirus. A neat rhetorical trick but, from the leader of a party claiming to be good at managing the economy, not good enough.

The risk of the economy being hit by shocks (good or bad) is always present. We could have had a terrible cyclone up north – or more than one. The US-China trade war could have escalated. And this isn’t the first virus to spread around the world.

Consider this. If you were to contract the coronavirus, in what physical state would you prefer to be at the time – in good health or poor health? It’s the same with economies. The stronger the economy is when the adverse shock hits, the easier it is to contain the disruption and get back on track.

Point is, good economic managers don’t allow the economy to get so weak that, should it be hit by a serious shock, recovery from that shock would be much harder and the risk of it turning into an actual recession much greater.

This helps explain why Reserve Bank governor Dr Philip Lowe has been urging Morrison to use the budget to strengthen the economy for several years, backed up by the International Monetary Fund, the Organisation for Economic Co-operation and Development and many of the nation’s macro-economists.

But no, our headstrong Prime Minister knew better. If he wasn’t prepared to take advice from fire chiefs and climate scientists, why would he listen to economists on a subject which, being a Liberal, he already knew all he needed to know: despite its weakness, the economy can take its chances while we get the budget Back in Black. That will leave us better-placed to respond to a recession once it’s upon us.

Turns out it took the medicos to bring him to his senses. Impose travel bans that decimate most of our services export industries? Yes, doctor, certainly, doctor. So now we’re doing what we said only spendthrift, Keynes-crazed Labor governments do: spending money and, more particularly, cutting tax receipts, to offset the damage the travel bans are doing.

Since the return to surplus is no more, we could use the opportunity to give the economy a much wider stimulus – put money directly into the hands of consumers, for instance – but no. It seems Morrison is still hoping a quick recovery from the virus shock will have the budget back to surplus in time for the next election.

Really? This is where his amateurism is still showing. In principle, the virus is, as Kennedy says, no more than a “short-term shock” from which the economy soon bounces backs. And that’s the right objective for fiscal (budget) policy.

But if that’s your objective, you don’t brief political journalists in ways that encourage them to inform their audience that two successive quarters of contraction in real GDP are likely, which – as God-ordained, and every fool knows – equals a recession. Even the usual weasel-word “technical” is missing from these confident assertions.

What’s missing from the government’s – but, if you read them carefully, not its econocrats’ – thinking is an understanding that managing the confidence and expectations of consumers and businesses is half the battle. Animal spirits, as some unmentionable economist once put it.

If you’re trying to ensure that a short-term shock doesn’t become a lasting recession, you don’t encourage the media to make free with the R-word, even though it does help you cover your embarrassment at having claimed we were Back in Black when we weren’t, and now aren’t likely to be for ages.

When is a temporary economic shock a recession? When you listen to your political spin doctors, but not your econocrats.

Ross Gittins is the Herald’s economics editor.

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Banks take one for the team – pass on full rate cuts despite profit impact

For months Australian banks had been anticipating a fall in the cash rate. Last week they rightly braced for impact. On Tuesday afternoon when the Reserve Bank hit with a 25 basis point cut they were ready.

The RBA moved on the back of a national emergency and the banks already knew they had to take one for the team and follow suit. Unfortunately for them their profits will be damaged by passing on the rate cut. In the seconds following the RBA announcement the share prices of the big four banks fell in unison.

The big four banks had to wear the interest rate cut.Credit:AAP

But ultra low interest rates are the enemy of banks and where previously they have been able to cushion themselves from some of the damage using sophisticated hedging, there is limited scope for this to continue.

Ultimately banks can’t outrun falling rates. The only weapon left in the banks’ arsenal is to limit the extent to which the RBA’s interest rate cut is passed on to customers. But they couldn’t be seen to be firing it this time around. Even bank bosses must have seen the chaos in supermarkets over the past few days as shoppers stockpiled emergency supplies.

And this time – perhaps more than it has previously – the federal government had loaded its arsenal to fire at banks prioritising their profit over the national interest.

UBS bank analyst Jonathan Mott picked it well in a note to investors on Tuesday morning. "Given the emergency nature of any rate cuts we believe the banks will be under pressure to pass through the vast majority of the cuts to borrowers … and accelerate the effective date."

Succumbing to that pressure will be an expensive departure from the banks' usual modus operandi.

But like any RBA rate change, the gaming between the banks on how much and when will still play out. They generally hunt in packs. This time around it was Westpac that took the lead. It had clearly planned to pass on the full 25 basis point cut and came out of the gate with an announcement immediately after the RBA had released its news.

It allowed Westpac to capture some much-needed moral high ground and left the other three with nowhere to go. Within 20 minutes the Commonwealth Bank followed and passed on the cut in full. An hour later the National Australia Bank fell into line and by the end of the day ANZ had joined the party.

There is now an additional component banks have had to factor into the equation on rates – its fresh and fierce competition. The most recent round of bank profit reporting showed clearly that three of the big banks are losing market share in home lending and only the Commonwealth Bank had gained any market share. More recent figures suggest the CBA is now growing in line with the market.

Smaller banks and the new breed of fintech outfits are eating their lunch. The big four have feasted on mortgages for decades and are desperate to get their slice of the now-growing home loan market.

What is considered to be a response to the misbehaviour highlighted by the banking royal commission into financial services, the big four’s market share has fallen to 78 per cent – where it has traditionally been above 80 per cent. The large banks have been attempting to cherry-pick the highest quality new and refinancing borrowers by offering them healthy incentives.

Macquarie referred to this in an investor note on Monday saying cashback offers of $2000 to $4000 were up for grabs. Honeymoon deals for new borrowers, meanwhile, led to a bigger divergence in rates paid by new and existing customers – this is referred to in the trade as front book and back book.

The government, which has a healthy disdain for this market share grab, calls it a ‘loyalty tax’ imposed on customers that regularly don’t scope out the best deals.

But it would have had more than disdain for banks that didn't pass on the interest rate cut in full.

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