An economy with secure work and a pay rise? Economists say we’re painfully close
There’s economic growth, and there’s economic growth.
A big boost in government spending, or a mining boom, can lead to greater economic output or growth. The key though, as always, is whether or not it’s sustainable.
If it is, the economy begins to produce wonderful characteristics like ongoing employment and higher wage growth.
Right now, the building blocks for meaningful economic growth are in place: higher consumer spending and demand for labour.
Achieving the next step is the particularly challenging bit, but much of the hard work has been done.
Coronavirus economic stimulus
Any Australian who has lost a loved one, or a job, or suffered family violence during the many lockdowns would likely say 2020 was a traumatic year.
However, on a national level, when compared to countries like the United States and Britain, Australia has come through the pandemic relatively well so far.
While our worst health fears were never realised, everything but the kitchen sink was thrown at the economy.
In fact, in total, the Government expects to rack up roughly $1 trillion in debt to pay for income subsidies like JobKeeper, JobSeeker and other policies to keep businesses and families afloat.
Tracking how this stimulus has been and is being spent is crucial to understanding how the economy may fare this year.
Saving turned into spending
Because of the inherent uncertainty that comes with managing a pandemic, many households chose to pay down debt and save some of the government cash handouts, rather than spend.
The logic was simple: Who knows what the next months will bring, so I think I’ll squirrel the money away for a rainy day.
The thriftiness seemed to peak in April.
Consumer spending came roaring back in May, but a 112-day lockdown in Melbourne, which ended in late October, snuffed that out.
Now, there’s not only evidence shoppers are loosening their purse strings, but that businesses are also hiring.
That’s a recipe for further spending by both shoppers and businesses.
Spending is back up
Late last year shoppers took full advantage of Black Friday sales and the release of the iPhone 12.
Business turnover was strong enough to encourage bosses to take on more staff. ANZ Job Ads surged 13 per cent in November and further 9 per cent in December.
Earlier this week, retail spending showed promise, again.
Figures released by the Bureau of Statistics on Monday show national retail sales jumped 7.1 per cent in November as Melbourne shoppers came out of lockdown to splurge.
Strong internet sales during the Black Friday and Cyber Monday online sales period also helped boost overall spending.
Shoppers spent the most in Queensland, up 4.5 per cent, followed by Tasmania, up 3.4 per cent, and the Australian Capital Territory, up 2.5 per cent. Spending in New South Wales lifted 2.3 per cent.
And again, private sector spending data released on Monday backed this up.
According to the Commonwealth Bank, credit and debit card spending in the week to January 8 rose by 13 per cent on a year ago.
Electronics are popular, as are household items and clothing and footwear.
It is up to businesses now
The gross domestic product or GDP equation is simple: Consumption plus business investment plus government spending and net exports… make it up.
All components, bar business investment, are coming through for the economy right now.
Businesses small and large have the option now, if they can, to hire more workers and grow their firms.
Economist Angela Jackson sums it up this way:
“The Government has certainly put a lot on the table to encourage business investment. And if [businesses] don’t [spend] this year, you kind of think, well, are they ever going to do it?”
The question is, she says, “Are the conditions there for businesses to invest, and do businesses have the confidence to do that?”
The economic boon and you
As always, it’s meaningless to talk about economic growth unless it affects your hip pocket directly or Australians, more broadly, benefit from it in some way.
Obvious benefits include higher pay for those on low incomes and more secure work for those who are underemployed.
Industrial relations expert John Buchanan argues while the recent lift in consumer spending — which makes up the vast bulk of economic growth — is encouraging, there’s still a lot of slack in the labour market.
The current underemployment rate is still hovering around 10 per cent.
The next few months will be crucial
Coronavirus, and the economic threats that come with it, aren’t going away anytime soon.
Government subsidies need to remain in place, consumers need the confidence to keep spending, businesses will need to continue expanding and hiring, and China will need to keep sucking up Australia’s raw materials.
As it stands, JobKeeper and JobSeeker will end in March, and hard COVID-19 lockdowns remain a constant threat for business — making longer term investment plans challenging to say the least.
But is there ever a time when achieving sustainable economic growth is easy? Of course not.
Australia’s management of the coronavirus has left us with a better-than-expected economic platform on which to launch — thanks to a once-in-a-generation politically palatable government spending spree.
Taking a few business risks now, however scary, could lead to stronger sustainable economic growth — something many Australians have been longing for now for years.