Is Australia out of recession? Yes, but many people are still out of work and feeling the pain
It is politically difficult to sell a good news story when about 1 million Australians are still out of work and many are struggling to pay their rent and bills.
The latest jobs figures from the Australian Bureau of Statistics (ABS) showed 960,900 people were considered officially unemployed in October, down from 1,008,300 in July.
But then the ABS’s national accounts data out on Wednesday showed GDP grew 3.3 per cent in the September quarter, as most states and territories eased COVID-related restrictions.
Responding to those numbers, Federal Treasurer Josh Frydenberg said while there was reason to take hope in the latest economic numbers, Australia was “not out of this crisis yet”.
“Technically the recession is over, but the recovery is not,” Mr Frydenberg said.
“The economic indicators are positive. That being said, this is a very challenging time and there’s a lot of ground to make up.”
Shadow Treasurer Jim Chalmers pointed out the September growth GDP data was no comfort to 1 million Australians who are currently out of a job.
“For many Australians what looks like a recovery on paper will still feel like a recession,” Mr Chalmers said.
“What really matters is not one quarterly GDP number on a page but how Australians are actually faring and whether they can provide for their loved ones.”
How can the economy be growing when so many people are out of jobs? Does that mean we can really say we are out of a recession?
Are we out of recession or not?
Yes, “technically” — if you accept the definition that a recession is when real gross domestic product (GDP) falls for two successive quarters.
But not all economists agree the recession is really over.
They say, sure, the positive GDP growth numbers meet that technical definition, but also point out that much of our society is still suffering the consequences of COVID-related shutdowns.
It’s also not totally positive data: the GDP numbers show that while the economy grew over the quarter, it declined 3.8 per cent in the year to September 2020.
The September quarter growth came after a 7 per cent economic contraction in the three months through June — the worst fall on record, which confirmed Australia had entered a technical recession.
CommSec chief economist Craig James said while Australia was now technically out of recession, the textbook definition was not perfect.
It, he said, failed to take into account “the societal impact of recession … especially on the labour market”.
“But based on this definition, Australia has emerged from recession and the outlook for growth is encouraging,” Mr James said.
AMP economists Shane Oliver and Diana Mousina also noted that the data “confirms that the coronavirus recession which lasted for six months through the March and June quarters in Australia is officially over”.
But they also point out that annual growth in GDP is still negative, down by 3.8 per cent compared to a year ago, “which is still more negative than any GDP slump seen since the end of World War II”.
Why such a fast turnaround in GDP numbers?
Economists point to two main reasons.
Firstly, they say, it’s a sign that the hundreds of billions of dollars of economic stimulus injected into the economy is working.
Government subsidies like JobKeeper and JobSeeker have kept people afloat.
The Reserve Bank has cut interest rates to record lows and pumped $100 billion into the economy through its quantitative easing program.
Most states and territories (except Victoria) also came out of lockdown, which helped bring back business and pump money into the economy, and now that state borders are reopening, local retail spending and tourism is expected to lift.
As Mr Oliver and Ms Mousina note: If Victorian GDP growth was in line with outcomes from the other major states (instead of falling by 1 per cent), then national GDP growth would have been 2 percentage points, or about 5.3 per cent, higher.
But economists are rightly asking, what happens when those stimulus measures end? What if the vaccine is delayed? What if another wave of the virus spreads domestically?
The Reserve Bank governor Philip Lowe and others have warned recovery from this year’s recession is likely to be “unpredictable and uneven”.
When will we know we’ve turned the corner?
Some economists suggest looking at the economic indicator that’s possibly the best indicator of the real-life impact of the recession: the rate of unemployment.
The impact of people not having jobs, or working far less hours than they used to, will continue to be felt for years.
Australia’s unemployment rate has risen from 5 per cent in less than a year. The latest data shows it increased again in October, from 6.9 per cent to 7 per cent.
The good news was that the jobs numbers showed a surge in the “participation rate” — which expresses the labour force as a percentage of the working-age population — from 64.9 per cent to 65.8 per cent.
That’s partly why the unemployment rate edged up, because more people re-entered the labour force to look for work so the pool of available workers increased but not all of them have found jobs.
But even as more people find jobs, there’s another hurdle: wages aren’t rising. They are growing at their slowest pace in recorded history.
The average workers’ wage increased by just 0.1 per cent in the September quarter, and by 1.2 per cent over the last 12 months.
The real-life impact of this can be seen across all industries — with Virgin Australia the latest employer asking thousands of workers to accept long-time pay freezes.
The Reserve Bank expects the unemployment rate to stay high for a number of years, and wages to remain subdued.
The RBA has said the unemployment rate will still be at 6 per cent by the end of 2022 (most economist forecasts are more or less in line with that).
So technically the recession might be over, but we’re not out of the woods just yet.
Many Australians still feel the pain and will for some time to come.