Forget the tech jargon – we are in a recession right now and without a jobkeeper it will be much more difficult to get out of it.
Retail spending is declining, especially among hospitality businesses in Sydney and Melbourne who are now completely dependent on takeout and delivery to keep running.
Rows of empty stores blew the teeth of what were once fashionable shopping and entertainment streets.
And although Queensland has so far avoided the lockdowns that have hit Sydney and Melbourne, it could also tip if the highly infectious Delta strain crosses the border into New South Wales.
When talking about the economic slump in Australia, the political and media classes tend to use the term “technical recession”. This means two consecutive three-month periods when the economy has contracted.
On that measure, as long as Sydney and Melbourne escape lockdown by the end of the year, there will be no repeat of last year’s Covid recession because even though growth is minimal in all three month at the end of December, it will come after a quarter in which the treasurer, Josh Frydenberg, expects the economy to contract by 2%.
But as he examines the economic damage caused by the foreclosure of more than half of the national economy, Gareth Aird, chief economist at Australia’s largest bank, the Commonwealth, says the term “technical recession” doesn’t is “not suitable for the time”.
In the United States, the commonly accepted definition is set by the private sector group, the National Bureau of Economic Research (NBER): “a period between a peak and a trough in the business cycle where there is a significant decline in the economy. economic activity spread across the economy which can last from a few months to over a year.
On this measure, is Australia already in a recession?
“Yes, that’s right,” Aird said. “And that’s a much better definition.”
Sarah Hunter, chief economist at BIS Oxford Economics, points out that the definition of NBER is subjective and the organization has the benefit of making decisions about what counts as a recession after the fact.
She says that given the extended shutdowns in Melbourne and Sydney through October or November, and the economic data emerging for August, “I would expect the NBER committee to define the current period as a recession.” .
Some of this data is grim. Figures from point-of-sale provider Lightspeed, which has around 10,000 merchants in its network, show hospitality spending slumped last month. Spending in bars fell 15.2%, cafes 6.2% and restaurants 8.2%.
Credit card spending in Victoria and New South Wales last month also declined compared to the same period in 2019, the last year before the pandemic, according to data from the Commonwealth Bank of Australia.
So far, the recession has not dampened Australia’s obsession with buying property, with little effect on mortgage payments, according to rating agency S&P.
But in a note to clients, S&P warns that the NSW and Victoria closures “will dampen economic activity, with many businesses closed.” It indicates that self-employed borrowers are the most likely to have difficulty paying the mortgage.
“Self-employed borrowers in affected areas and industries are more susceptible to cash flow pressures caused by lost income compared to full-time, pay-as-you-go employees who can continue to work remotely with minimal impact on household income, ”says S&P.
Aird says we shouldn’t be fooled by the inevitable bounce in the dark in December.
“If you measure things in growth rates, then they’ll look good because you’re coming out of a low base, so the only way is to increase,” he says.
“But really, you want to look at it from a level point of view and say: what is the level of activity in the economy and the level of employment, compared to what we had two months ago when it was was sort of the best we had post Covid until Delta arrived?
“And I think it takes us a long time to get back to that level, because Covid, because the virus, is everywhere.”
Currently, locked-out workers and businesses are receiving money from the federal government in the form of emergency payments. But a big difference between the current system and Jobkeeper is that Jobkeeper continued to pump money into the economy when it reopened.
Unless Frydenberg and his Prime Minister Scott Morrison effect a brutal policy reversal, emergency payments will automatically be halted as the lockdowns lift.
Aird points out that, even under the national plan, which calls for blockages to be rare once 80% of those over 16 are vaccinated, there will still be restrictions that will hamper trade.
“So we have no idea at all how much support businesses will need throughout this process, but I would say they will need some support,” he says. “I just don’t see workers returning to CBD en masse overnight.
“So all these businesses out there that are on life support, they’re going to need some support to keep going if they’re not going to shut down.”
Hunter says disaster payments definitely mitigate the blow to businesses, but the picture is grim.
“One area that we will be watching very closely is how quickly companies are able to bring back their employees once restrictions are relaxed, given that the bond between workers and companies is weaker this time around,” says -she.
“We have seen in other countries that there have been major upheavals in the labor markets that have hampered the recovery.
“Given the duration of the blockages, the need for everyone to adapt to a new Covid-normal, and the fact that for some companies, they will not be able to reopen immediately – which will increase the risk of workers and businesses pull away – the road to recovery is likely to be bumpier this time around. “