Tag Archives: Wage Growth

Australian Economic News: The Lowest Decline in 90 Years to Come | Instant News


Photographer: Brendon Thorne / Bloomberg

Australia seems to have succeeded in leveling the coronavirus curve, but such optimistic health outcomes will not prevent the economy from experiencing a deep decline. Our case base anticipates the greatest contraction since the Great Depression of 1930-1931.

Significant stimulus – both monetary and fiscal – protects households and helps businesses to survive and retain workers. Despite this, Australia’s small open economy has suffered considerable damage and faces challenges from weak global demand and trade. Significant monetary-fiscal coordination to provide further stimulus will be needed to restore the economy over the next few years.

  • We anticipate three consecutive quarters of decline in gross domestic product, with the Australian economy contracting by 9% from 4Q 2019 before a gradual recovery begins in 4Q 2020. We do not expect a recovery for pre-outbreak activity levels until 2H 2022.
  • For 2020, our base case estimate remains a 6% contraction, unchanged from our previous projections. Better than expected containment of the virus will encourage 2021 growth from 1.6% to 2.5%. The potential for a second wave of outbreaks remains a major downside risk.
  • Monetary policy has shifted to support fiscal policy and maintain financial stability. Overnight cash exchange rates are expected to remain on hold at least until 2022, with ongoing quantitative easing to hold yields amid increasing issuance when fiscal packages and automatic stabilizers start.
  • How far the unemployment rate rises depends on the participation trend. The labor market looseness will last for years, which will suppress wage growth and inflation.

The Biggest Financial Year Contraction in Australian GDP in 90 Years

Australia - long-term GDP with the forecast

Australian Bureau of Statistics, Reserve Bank of Australia, Butlin, Bloomberg Economics

Australia’s real success in controlling coronavirus outbreaks has paved the way for the economy to emerge earlier than economic hibernation which is expected to last for six months. But this process tends to be gradual, and will not prevent a significant economic downturn.

Compared to our previous estimates, what has changed is the level and timing of the blow to the economy from actions taken to deal with the health crisis. There has been a significant setback from retail spending in 1Q 2020. This will weigh on consumer spending in 2Q 2020, creating deeper contractions.

There is a non-trivial risk that shopping prevents the Australian economy from contracting in 1Q, although we think this is not possible given the possible decline in the non-retail household consumption sector, and wider economic activity.
We are now lacking confidence in seeing the contraction in activities continue until 3Q 2020. We currently anticipate a small decrease in 3Q GDP, although this depends very much on how the virus restriction is not lifted.

Revocation of restrictions will allow the business to restart. However, triggering demand may not be as easy as giving a hit on household and business confidence, and damage to the balance sheet. The resumption of economic activity will also be accompanied by some temporary fiscal measures which are not attractive, which can reduce income and demand.

Recovery in Economic Activities Will Need Continuous Policy Support

Australia - GDP Forecast profile

Bloomberg’s economy

As a small open economy, a weak global economic background can also hamper Australia’s economic recovery. In addition, the risk of a second wave of outbreaks – most likely imported – means that international travel restrictions cannot be reduced immediately. While Australia’s international borders will remain closed for 3-4 months, the potential for easing restrictions on movement in “virus-free” zones, such as with New Zealand, does present an upward risk to prospects.

Preliminary estimates from the labor market confirm that containing the virus has come at a great cost. Despite the substantial fiscal response, the sad reality is that not all businesses and jobs will be saved. Fiscal policy needs to turn from economic survival to stimulus and recovery when the virus starts to be controlled.

Overhangs in the labor market tend to be more prominent than traditional headline indicators suggest. Our forecast combines a sharp rise in the unemployment rate. But even so, the true picture of a decline in labor demand, or the level of excess labor supply, is likely to be obscured by a decrease in participation and a reduction in hours worked per employee.

As aid payments decrease and social distance decreases, labor force participation, and subsequently the unemployment rate, is likely to increase. Significant dislocations in the labor market may last for a long time even if economic growth can recover. The economy must “heat up” – or above potential – for a long period of time not only to reengage unemployed workers, but also to absorb fundamental growth in the supply of labor.

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Freezing the salaries of Australian civil servants on coronavirus is just a big mistake Greg Jericho | Opinion | Instant News


AIf the first economic data that reveals the terrible impact of the corona virus is released, the government chooses to freeze civil servants’ wages. However, a new report shows this will not only create a large and sustainable impact for workers, but also vice versa act to reduce economic activity when the economy needs all the growth that can be obtained.

A a month ago I suggest a few steps to look at to see how the economy travels. This week has seen the release of the first lot (with March unemployment figures coming out this morning), and the picture is not good.

Yesterday saw February travel data, and in some sense the news was OK – the annual decline in short-term arrivals through February was 18% – in line with what happened after September 11 and during the Sars outbreak:


The problem of course is that the number of arrivals will drop to zero effectively.

Already in February we saw the number of short-term arrivals from China drop by 76%, from 81,600 in January to 19,500. That fall alone accounted for 67% of the decline in the total number of visitors.

That NAB monthly business survey on Tuesday revealed a decline in the business conditions index from minus 1.7 (below the long-term average) to a new record low of minus 21:


It was also the biggest one-month decline ever recorded. In October 2008, at the start of the GFC, the index fell 9.1 points; this month it fell 19.3 points.

This is not surprising considering not only the current crisis but because, as the most recent building activity figures show, even before the economic crisis was struggling.

In the four quarters to December last year, private sector development activity fell 8.2% – the worst decline in a decade:


It’s never good to experience the worst growth for a decade, right before Global pandemic causes economic closure!

In response, both the federal and state governments have begun significant fiscal expenditures to keep the economy from craters completely while most people stay at home.

This is a reasonable response. And despite the rather strange determination to allow work guard benefits only for casual workers who have been with the employer for more than 12 months (arbitrary periods set without reference to the economy) and lack of access for contract workers, have been well targeted.

But coupled with this it has become a decision by Morrison government, and expanded in NSW and Queensland, to freeze civil servant wage increases.

The reason is, as the assistant minister for the prime minister and cabinet, Ben Morton, suggested, that “while the public is doing it hard, it is important that the APS helps share the economic burden.”

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Except that the reason has no economic logic, and as written by the progressive think tank Center for the Future Work Australia Institute, this will also incur ongoing costs for civil servants for more than six months.

The problem, as the author of the paper, “The Same Mistake Twice: self-sustaining consequences of frozen public sector payments”, notes is that wage freezes were not made in later years.

Troy Henderson and Jim Stanford argue that “the reduction in the wage rate due to wage freezes is reflected in a permanent reduction on a nominal wage basis. Therefore workers continue to experience income losses long after the wage freeze is lifted. “

This is because freezing lost wages are never caught. If you freeze wage growth of 2.5% for one year, the government will not provide a 5.1% salary increase within a year to make up for lost years.

So, you always lag 2.5% a year.

Henderson and Stanford calculated that for APS workers with the remaining 20 years of work, a freeze of six months’ wages would cost an average of $ 23,532 during their employment. For the average Brisbane city worker, who will experience a two-year wage freeze, the cumulative cost averages $ 100,842:


But the problem is not only the costs for individual income.

Freezing public sector revenues does not only act against efforts to use public spending to improve the economy, but also undermines future private sector wage growth.

Henderson and Stanford noted that the restraints on public sector wages that occurred after the GFC “led” in “led to a more serious and long-lasting decline in wage growth … which began about three years after the GFC was hit”:


The desire to limit civil servants’ salaries to rise also becomes a stereotype that does not contain water.

Over the past decade, the average wage of public administration and safety workers has increased by 30.2%, compared to 29.7% for all private sector workers – there is almost no feeling of a “fat cat” doing better than others:


And if we look at ACT public sector workers, who are very wealthy public servants, not only do they receive lower salary increases than other public sector workers, but lower even than private sector workers:


Freezing the salaries of civil servants is a good way to talk to radio presenters, but actually serves to add to the lack of growth in the economy. And the important thing is that this indicates that wage growth in the private sector will continue to falter even after this crisis has passed from the need for savings when we need growth.

.



image source

Freezing the salaries of Australian civil servants on coronavirus is just a big mistake Greg Jericho | Opinion | Instant News


AIf the first economic data that reveals the terrible impact of the corona virus is released, the government chooses to freeze civil servants’ wages. However, a new report shows this will not only create a large and sustainable impact for workers, but also vice versa act to reduce economic activity when the economy needs all the growth that can be obtained.

A a month ago I suggest a few steps to look at to see how the economy travels. This week has seen the release of the first lot (with March unemployment figures coming out this morning), and the picture is not good.

Yesterday saw February travel data, and in some sense the news was OK – the annual decline in short-term arrivals through February was 18% – in line with what happened after September 11 and during the Sars outbreak:


The problem of course is that the number of arrivals will drop to zero effectively.

Already in February we saw the number of short-term arrivals from China drop by 76%, from 81,600 in January to 19,500. That fall alone accounted for 67% of the decline in the total number of visitors.

That NAB monthly business survey on Tuesday revealed a decline in the business conditions index from minus 1.7 (below the long-term average) to a new record low of minus 21:


It was also the biggest one-month decline ever recorded. In October 2008, at the start of the GFC, the index fell 9.1 points; this month it fell 19.3 points.

This is not surprising considering not only the current crisis but because, as the most recent building activity figures show, even before the economic crisis was struggling.

In the four quarters to December last year, private sector development activity fell 8.2% – the worst decline in a decade:


It’s never good to experience the worst growth for a decade, right before Global pandemic causes economic closure!

In response, both the federal and state governments have begun significant fiscal expenditures to keep the economy from craters completely while most people stay at home.

This is a reasonable response. And despite the rather strange determination to allow work guard benefits only for casual workers who have been with the employer for more than 12 months (arbitrary periods set without reference to the economy) and lack of access for contract workers, have been well targeted.

But coupled with this it has become a decision by Morrison government, and expanded in NSW and Queensland, to freeze civil servant wage increases.

The reason is, as the assistant minister for the prime minister and cabinet, Ben Morton, suggested, that “while the public is doing it hard, it is important that the APS helps share the economic burden.”

Register for the Guardian Australia daily coronavirus email newsletter


Except that the reason has no economic logic, and as written by the progressive think tank Center for the Future Work Australia Institute, this will also incur ongoing costs for civil servants for more than six months.

The problem, as the author of the paper, “The Same Mistake Twice: self-sustaining consequences of frozen public sector payments”, notes is that wage freezes were not made in later years.

Troy Henderson and Jim Stanford argue that “the reduction in the wage rate due to wage freezes is reflected in a permanent reduction on a nominal wage basis. Therefore workers continue to experience income losses long after the wage freeze is lifted. “

This is because freezing lost wages are never caught. If you freeze wage growth of 2.5% for one year, the government will not provide a 5.1% salary increase within a year to make up for lost years.

So, you always lag 2.5% a year.

Henderson and Stanford calculated that for APS workers with the remaining 20 years of work, a freeze of six months’ wages would cost an average of $ 23,532 during their employment. For the average Brisbane city worker, who will experience a two-year wage freeze, the cumulative cost averages $ 100,842:


But the problem is not only the costs for individual income.

Freezing public sector revenues does not only act against efforts to use public spending to improve the economy, but also undermines future private sector wage growth.

Henderson and Stanford noted that the restraints on public sector wages that occurred after the GFC “led” in “led to a more serious and long-lasting decline in wage growth … which began about three years after the GFC was hit”:


The desire to limit civil servants’ salaries to rise also becomes a stereotype that does not contain water.

Over the past decade, the average wage of public administration and safety workers has increased by 30.2%, compared to 29.7% for all private sector workers – there is almost no feeling of a “fat cat” doing better than others:


And if we look at ACT public sector workers, who are very wealthy public servants, not only do they receive lower salary increases than other public sector workers, but lower even than private sector workers:


Freezing the salaries of civil servants is a good way to talk to radio presenters, but actually serves to add to the lack of growth in the economy. And the important thing is that this indicates that wage growth in the private sector will continue to falter even after this crisis has passed from the need for savings when we need growth.

.



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