Australia is on track to slash unemployment to historic lows and drive up wages next year, with data showing the jobs market has shrugged off the Delta lockdowns.
As Treasurer Josh Frydenberg unveiled the federal government’s latest economic update on Thursday, the Australian Bureau of Statistics (ABS) released data showing about 366,000 workers returned to the labour market in November – driving employment to record levels.
Mr Frydenberg seized on the stronger-than-expected data to report new forecasts showing Australia’s jobless rate is on track to fall to 4.5 per cent by July, clearing the way for the government to repair the federal budget.
He said the budget bottom line is already improving faster than expected.
“The rapid recovery from the Delta lockdowns is expected to see the creation of around one million new jobs by the end of the forecast period [four years],” Mr Frydenberg told reporters in Canberra on Thursday.
“But these gains are not yet locked in and we must continue to learn to live with the virus as demonstrated by the emergence of Omicron.”
The unemployment rate fell from 5.2 per cent to 4.6 per cent in November after a record number of workers returned to their jobs after lockdowns ended in New South Wales, the ACT and Victoria during October.
Economists said the figures showed Australia has largely overcome the economic impacts of the Delta variant and is now poised to recover strongly into next year, with wages growth expected to pick up.
“All the job losses since August have been made up,” economist Saul Eslake told The New Daily.
“It shows the economy has bounced back really quickly.”
But the Omicron variant, which has pushed a few states to reinstate some coronavirus restrictions this week, remains a key uncertainty.
Reserve Bank governor Philip Lowe tempered expectations during a speech on Thursday, saying that although a lower unemployment rate would put upwards pressure on wages next year, this was only expected to happen gradually.
Jobs market shakes off Delta
Thursday’s job figures showed most workers who left the labour force during the recent Delta lockdowns have returned to work faster than expected.
The underutilisation rate – unemployment plus underemployment – fell 2.6 percentage points to 12.1 per cent – the lowest since August 2012.
Indeed APAC economist Callam Pickering called the data “spectacular”.
“While lockdown was dreadful, and devastating for many, the labour market is now as tight as we’ve seen since the GFC,” he said.
EY chief economist Jo Masters said the data showed that the so-called “Great Resignation” experienced in the US has not come to Australia.
“The participation rate rose by 1.4 percentage points, meaning 297,000 Australians came back into the workforce,” she said on Thursday.
Rosy forecasts
Unsurprisingly, the Morrison government seized on the jobs figures to talk up the strength of the economic rebound.
Mr Frydenberg used his mid-year fiscal and economic update (MYEFO) to forecast a world-leading recovery for Australia in 2022.
“[The] numbers show a stronger outlook than forecast in May,” he said.
“Household consumption is set to increase at its fastest pace in more than two decades.”
Federal Treasury has a poor track record forecasting the economy, but nevertheless its latest projections bet on the unemployment rate falling to 4.25 per cent by June 2023 and annual wages growth rising from 1.7 per cent to 2.75 per cent during that time.
It expects annual consumer price inflation will finish 2021-22 at 2.75 per cent before falling to 2.5 per cent in 2022-23.
This implies real wages (purchasing power) will fall by 0.5 per cent over the next 18 months – meaning living standards are projected to go backwards.
Elsewhere in MYEFO, the federal government’s underlying cash balance improved from $106.6 billion in deficit at the last budget to $99.2 billion today.
The four-year forecast for the underlying cash balance improved by $2.3 billion since May, meaning the federal budget deficit is now predicted to fall from $100 billion in 2021-22 to $57 billion in 2024-25.
The budget bottom line shows a nearly $100 billion deficit in 2021-22, improving to $57 billion in 2024-25.
Overall, it’s a rather rosy outlook for the economic recovery, underpinned by several large assumptions about where Australia is headed. Not least of which concerns the Omicron coronavirus variant.
“The Omicron variant is not assumed to significantly alter current reopening plans or require a reimposition of widespread health and activity restrictions,” the MYEFO forecasts said.
RBA patient on gradual rebound
Dr Lowe was more circumspect about the future in a speech on Thursday, saying the central bank is prepared to be patient and wait for the recovery to materialise before raising the official cash rate (interest rates).
He said the jobs market will continue to improve next year, but wages growth will only increase gradually in response.
“Wages growth remains relatively low in Australia,” Dr Lowe said.
“There are certainly hotspots in which wages are increasing briskly, but most workers are still receiving wage increases starting with a two, and sometimes lower than this.”
The RBA expects wages growth to rise more slowly than Treasury, with the central bank tipping it to reach 2.5 per cent by the end of 2023.
Dr Lowe says it must rise above 3 per cent for inflation to sit sustainably within the RBA’s target band of 2 to 3 per cent.
That’s the condition needed to trigger a rise in the official cash rate, he reiterated.
“In our central scenario, the condition for an increase in the cash rate will not be met next year,” Dr Lowe said.
“It is likely to take time for that condition to be met and the [Reserve Bank] board is prepared to be patient.”
