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Economic recovery to slow, job losses set to rise
The Treasury department believes the economic recovery from the COVID-19 pandemic will be moderate, while job losses will rise when the JobKeeper subsidy ends.
Economic recovery to slow, job losses set to rise
The Treasury department believes the economic recovery from the COVID-19 pandemic will be moderate, while job losses will rise when the JobKeeper subsidy ends.
During an economics legislation committee, secretary to the Treasury Dr Steven Kennedy confirmed that between 100,000 to 150,000 Australians will lose their jobs once the JobKeeper wage subsidy ends at the end of March.
However, he noted the numbers needed to be put into context, with up to 400,000 people a month moving into or out of employment.
“In summary, JobKeeper has played a crucial role in supporting the economy and driving the recovery,” Dr Kennedy said.
“In our view, it is appropriate for the program to end as other support measures take effect and to allow the economy to continue adjusting.”
The Treasury pointed out that the current 5.8 per cent unemployment rate as of February outperformed their mid-year budget review, when the anticipated unemployment rate was projected to reach as high as 7.5 per cent.
He also noted that Australia’s unemployment rate will continue to fall in the coming months, confirming it needs to get below 4.5 per cent before meaningful wage increases occur.
However, he said there was a shift in where unemployment needed to be before wages started to grow and inflation pressures started to return.
Dr Kennedy highlighted the non-accelerating inflation rate of unemployment or NAIRU, which is traditionally impacted by employment scarring during a downturn, is likely to be ‘less pronounced’.
“Following the stronger and faster than expected recovery in the labour market, we are optimistic that the risk of persistent employment impacts (or scarring) from the COVID-19 shock is not as significant as we had previously feared,” he explained.
However, the Treasury secretary pointed out that despite Australia’s rapid recovery, the unemployment rate still needed to fall to grow the economy.
“The extent to which the unemployment rate can be lower before inflation pressure arises will be an ongoing consideration for the government.
“Our current range falls between 4.5 to 5 per cent, compared with 5 per cent previously,” Dr Kennedy said.
Dr Kennedy said the economy has now recovered 85 per cent of the decline from its pre-COVID level of output but expects economic growth to be ‘moderate’ after a strong recovery from the downturn in the second half of last year.
“While the economy is recovering strongly, well supported by fiscal and monetary policy settings, we are well below our pre-pandemic economic growth path and it will take some time to fully recover,” Dr Kennedy concluded.
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