Jobs bouncing back in July but with a slower trajectory– Is your future secured?

Summary

• Victoria declared ‘state of disaster’ and rise in the virus cases forced Melbourne and regional Victoria to enter stage 4 and stage 3 restrictions, respectively.
• Jobs continued to rebound in July, but its speed is relatively lower, as per the report by ANZ.
• Second wave and a shift to stricter restriction in Victoria have weighed on the recovery in the labour demand, as per the ANZ economist.
• IMF and RBA have urged the federal government to provide an additional fiscal support in the event of second COVID-19 outbreak.

Victoria has lately been undergoing the most stringent restrictions, as the number of coronavirus cases are continuously surging up in the state. As of 4 August 2020, the total number of coronavirus cases in Victoria stands at 12,335 with 147 deaths till date.

The Victorian government announced a large-scale shutdown of industry in Melbourne for 6 weeks to contain the spread of the second wave of infections.

A majority of retail, manufacturing and administration companies would close except essential businesses in metropolitan Melbourne, as stated by Victorian Premier Dan Andrews.

Victoria declared ‘state of disaster’ and entered Stage 4 restrictions, which would last for next 6 weeks until 13 September. This implies a curfew in place between 8 pm and 5 am, with the condition of residents leaving home only for work, caregiving, or medical care.

The concept of metropolitan Melbourne is based on the 1987 Planning and Environment Act that maps out regions of local government that comprise of metropolitan Melbourne, which does not include Mitchell Shire for the purposes of Stage 4 curfew or travel restrictions. The changes were proposed to lower the number of people leaving homes and restrict movement around Victoria.

Under stage 4 constraints, workout is restricted to one hour a day, and not more than 5 km from an individual’s residence, shopping is confined to 1 person per household a day, while studying at TAFE and university must be done remotely. Weddings are also not allowed to take place in the current scenario.

However, regional Victoria will return to stage 3 restrictions, which imply cafes and restaurants being permitted to offer facilities for takeaway and delivery; though, fashion, personal amenities, leisure, and cultural centres would be closed.

Labour market recovery at risk

The second wave of coronavirus and return to stage 4 restrictions in Melbourne and Mitchell Shire has weighed on the recovery of labour demand until now, as stated by ANZ ‘s Senior Economist Catherine Birch. She also added that payroll jobs turned down in initial July period, and few industries like construction and professional services are now undergoing lagged effects, which were less affected earlier.

She revealed that ANZ had taken into account 4-week extension in stage 3 restrictions and expects the labour market to recover more slowly than earlier anticipated. Although, the shift to stage 4 restrictions in Melbourne and Stage 3 restrictions in regional Victoria will deteriorate the outlook for the labour market. Additional fiscal support would be required soon to help households, workers, and businesses in this challenging period.

ABS survey conducted in mid-June revealed that 1 in 10 businesses plan to shut down, while 1 in 8 will reduce its staff.

Job advertisements has increased for the second consecutive month in July, but the speed of gains decelerated, as Melbourne re-imposed restrictions due to the second wave of COVID-19.

Over the month, job vacancies rose by 16.7% as the bulk of Australia's economy began to restart following a 41.4% rise in June. Yet, ads have been down a third since February, and by a comparable number from July over the year.

Further, fresh worries over the state of Victoria is holding back the economy as growth got shelved in July end.

Unemployment expected to worsen

The worst economic slump and biggest crisis in unemployment since the Great Depression is likely to deepen further, after an expansion in lockdown due to COVID-19 in Victoria.

Treasurer Josh Frydenberg stated that the present swathe of restrictions would result in a cost of $3.3 billion to the economy. He also admitted that the cost of Victoria's new stage 4 restrictions would be much greater than the estimates of the Treasury and will be felt beyond the state borders.

As per ABS, Victoria accounts for 25.1% of the national GDP that comprises of 18.7% of wholesale trade, 13.7% of retail and 13.5% of construction. This implies that more intensive shutdowns in Victoria are likely to spread across Australia, wiping out hundreds of thousands of more jobs and cutting more than $3 billion a week off the GDP.

Premier Daniel Andrews has stated that the shutdown will render above 250,000 Victorians jobless as a result of complete sectors freeze or function on a substantially lower basis. The direct effect of this will be huge on people as they are at home and worrying about their finances.

Employees are predictably being forced to pay the price for the recession, by employment reductions, wage cuts and freezes, and work-related threats, as well as social spending cuts amid the biggest corporate giveaways in the past.

The federal, state, and territory governments have been passing out above $300 billion via stimulus packages since March this year.

JobKeeper and JobSeeker wage subsidies have helped millions of workers. Once the subsidies start getting cut in September and governments end halts on rental evictions and mortgage reimbursements, workers financial stress, poverty and homelessness will further increase.

RBA and IMF urge government to give further support

RBA maintained its cash rate at 0.25% in its latest monetary policy meeting. The Bank's board also asserted that stage 4 restrictions in Victoria could push unemployment to reach 10% by the year-end (earlier forecast of 9.25% by December), which would imply an extra 340k people will be out of work apart from ~1 million already without an employment. Philip Lowe, RBA Governor, stated that more fiscal and monetary stimulus would be needed in these challenging times.

RBA now anticipates the economy to contract by 6% in 2020 before rising by 5% in 2021.

IMF has also cautioned about the economic impact of a fresh COVID-19 outbreak that will have to be offset by the federal government. The Fund stated that authorities must be ready to give further stimulus if needed, particularly in renewed COVID-19 outbreak.