Australia likely to experience largest economic downturn since the Great Depression (2024)

Australia is likely to experience the greatest economic contraction since the Great Depression, according to the Reserve Bank of Australia, and has already lost 800,000 jobs and suffered a 6.7% reduction in take home pay, according to the Australian Bureau of Statistics.

On Tuesday the RBA provided an economic update predicting a 10% decline in national output in the first half of 2020, a “staggeringly large” 20% reduction in hours worked and unemployment to hit 10% by June.

Figures from the ABS measuring the economic contraction in just the first three weeks of restrictions to prevent the spread of coronavirus found a 6% decline in jobs, with people under 20 suffering most from job losses and wage cuts.

Accommodation and food services, arts and recreation services were the hardest hit industries, according to ABS statistics using tax office payroll data to measure the downturn from 14 March, when Australia recorded its 100th Covid-19 case and the first restrictions on mass gatherings were implemented, to 4 April, five days after the $130bn jobkeeper wage subsidy program was announced.

The RBA governor, Phil Lowe, told reporters Australia is likely to experience “the biggest contraction in national output since the 1930s”, with jobs and income to remain depressed “as long as the restrictions need to stay in place” to fight the health crisis.

Nevertheless, Lowe expressed confidence the economy will “bounce back and recover” because “all those factors that have made Australia such a successful and prosperous country will still be there” on the other side.

Lowe suggested if restrictions are eased by mid-year, and most are lifted by year’s end except for the ban on international travel GDP could grow by 6% to 7% in 2021, after shrinking by that amount in 2020.

The ABS found the very old and very young experienced the worst job cuts, with 9.7% of those 70 and over losing employment, and 9.9% of those 20 and under.

But the young suffered the worst reductions in pay, down 12.7% for those 20 and under, compared with 9.1% for those in their 20s and 6.5% for those in their 30s.

Women were slightly more likely than men to have lost their jobs – 5.9% and 5.8% respectively – and lost more pay – 7%, compared with 6.4% for men.

Jobs were down 25.6% in accommodation and food services, 18.7% in arts and recreation and 8.4% in the mining sector.

Accommodation and food services, and arts and recreation services ,also led the way on pay cuts, down 30.1% and 15.7% respectively.

With bans on entertainment venues, dining in at restaurants and travel for non-essential reasons those sectors were always likely to be hardest hit. Labor has complained that the arts has been particularly disadvantaged because many of its 193,600 workers have been excluded from wage subsidies due to their engagement through contract work or having less than 12 months’ service as a casual with the one employer.

Tasmania was worst affected by job cuts, down 7.3%, followed by Victoria, down 6.8%. The reduction to take-home pay was worst in the Northern Territory (17.6%) and Victoria (8.8%).

The head of labour statistics at the ABS, Bjorn Jarvis, said most of the pain came later in the period.

“Looking at the week-to-week changes, the decrease in jobs in the week ending 4 April was 5.5%, significantly larger than the 0.5% decrease in the week ending 28 March,” he said.

Earlier, Scott Morrison revealed that since 16 March the government has processed 517,000 claims for jobseeker unemployment benefits and the number of claims in six weeks will soon top “what we would normally do in the entirety of the year”.

Morrison said that claims for unemployment benefits have slowed, but “the levels of claims are still very at the high-end”.

“They are obviously deeply concerning to me because every one of those half a millions Australians who has processed for jobseeker claims is an Australian who has lost their livelihood,” he told reporters in Canberra.

Lowe called for a suite of pro-growth reforms including changes to the tax mix between income, consumption and land; pricing of infrastructure; education; deregulation; and “the flexibility and complexity of our industrial relations system”.

The Grattan Institute has estimated the number of Australians out of work could reach between 17% and 28%, although it believes the jobkeeper wage subsidy scheme will obscure the impact and keep the official unemployment rate to between 10% and 16%.

The federal government has committed $214bn in fiscal stimulus and economic support, including doubling the value of the jobseeker unemployment benefit to $1,100 a fortnight and providing an estimated six million workers a $1,500 fortnightly wage subsidy.

Despite supporting the wage subsidy, Labor has raised concerns that jobkeeper payments exclude one million short-term casuals and 1.1 million visa-holders.

It has warned that although payments will be backdated to 30 March, employers will have to foot their wages bill until payments are made from 1 May.

As of Friday, some 872,173 businesses, including sole traders, had registered their interest to take part in the scheme, representing millions of employees.

Professional, scientific and technical services companies (14.4%) and construction companies (13.4%) put in the most requests.