covid-19 Economic Updates

COVID-19: ECONOMIC OUTLOOK AND FORECASTS

This update summarises the current view of Australia’s economic agencies and the forecasts of the big four banks.

While there is consensus that COVID-19 will push Australia into recession, it remains too early to tell the extent of the economic impacts. Official and private forecasters are expecting the economy to be around 5 per cent lower in 2020 and that the unemployment rate will creep up to 10 per cent or just under. The economy is expected to start growing again by the end of 2020.

There are two key areas of uncertainty in the outlook. The first being the pace at which the economy will be reopened (including any false starts due to subsequent outbreaks). The second is the impact of lingering second-round effects associated with weaker demand. It will likely take the economy a considerable period of time (years not months) to return to where it was before COVID-19. 

Party like it’s 2017 (or 2014)

• COVID-19 has thrown traditional forecasting methods out the window and the outlook is highly uncertain. Further, we have incomplete data as many key economic indicators are subject to significant time lags.
• Most forecasters expect the unemployment rate to peak at around 10 per cent or slightly below. The fall in hours worked is likely to be greater than the unemployment rate suggests due to the impact of JobKeeper (in reducing those technically unemployed).  The economy is expected to take the biggest hit in the June quarter (April, May and June) though there is less consensus about how deep the impact will be and how fast the economy will recover. 
• Forecasters in the middle of the pack are expecting around a 5 per cent fall in GDP over the year which would bring the economy back to 2017 levels. Given population growth, it may feel more like 2014 when considering the impact on a per capita basis.

What the RBA is saying

• The RBA expects national output to fall by around 10 per cent over the first half of 2020, with most of this decline taking place in the June quarter.  Unemployment is anticipated to reach around 10 per cent by June and total hours worked are likely to decline by 20 per cent over the first half of this year.
• The RBA expects the economy to bounce-back in the September quarter and to gain its momentum from there with GDP growth of around 6-7 per cent next year after a fall of 6 per cent this year. The RBA expects the unemployment rate will remain above 6 per cent over the next couple of years.
•  Wages growth is expected to decline to below 2 per cent before gradually picking up again. Inflation is anticipated to stay below 2 per cent over the next few years. The RBA has indicated the cash rate will not be increased until progress is made towards full employment and the inflation target. 
• Some other possible scenarios and further detail on the economic outlook will be discussed in the Statement on Monetary Policy which will be released on 8 May.

What Treasury is saying

• Treasury expects unemployment to reach around 10% in the June quarter and believes some jobs and businesses will have been lost permanently. The Treasury Secretary remarked that Australia was able to keep more parts of the economy open than other countries given our economic structure (with full lockdowns estimated to impact output in the order of 25 to 35 per cent according to the OECD, well above what Australia has endured). 
• Treasury indicated that as at 28 April, 540,000 businesses had registered for JobKeeper. Those enrolments would cover around 3.3 million employees. There were 800,000 businesses that lodged an expression of interest to participate in the scheme. 

What about the big four banks?

• The big four expect the economy will decline in the June quarter before bouncing back in the second half of this year, broadly in line with the RBA. 
• They expect the unemployment rate will reach around 8-10 per cent by June and roughly remain at that level toward the end of the year before starting to fall in the final quarter of 2020.

Related articles by Mark Frost - Chief Economist, Business NSW

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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn

COVID-19:  240,000 JOBS POTENTIALLY LOST IN NSW

View PDF version

• The ABS has released new data which uses aggregated data from employers that use Single Touch Payroll. This provides a more timely snapshot of what is happening to employment due to the effects of COVID-19. The data relates to the number of jobs as well as wages paid during the COVID-19 period.
  
• Business NSW has also used this new data to examine the potential impact of COVID-19 on the unemployment rate. Our estimates suggest around a quarter of a million jobs could be been lost in NSW due to COVID-19 with the NSW unemployment rate potentially more than doubling to more than 10% (from 4.8% in March).

State-by-state analysis

• Employee jobs were down by 6% across Australia and wages paid fell by 6.7% (wages fell due to fewer employed persons as well as other factors such as falls in hours worked).
• NSW performed in line with the national average (employee jobs fell by 6.4%, wages by 6.1%) however there was some variability across the states and territories. Employee wages had more variance across the states and territories, though falls in employee jobs were relatively consistent across the country.

Acceleration after lockdown measures

• Job losses and the wages impact accelerated towards the end of March for both NSW and the rest of Australia (coinciding with the implementation of lockdown measures). The dataset begins from early January where there was an increase before peaking in mid-February (after the summer holiday period).

Impacts by industry

• Jobs in hospitality and tourism-related businesses were the most severely affected in the period since 14 March. Some industries such as healthcare had a temporary spike from February, however have since fallen.

Impacts by age

• Younger and older age cohorts experienced the largest impact since 14 March. This likely reflects the profile of hospitality workers and reverses some of the recent increases in participation seen in the 70+ age bracket.

Age/Sex              % Change between 14 March and 4 April
                            (Change since 100th case of COVID-19)

Males                      -5.8%

Females                 -5.9%

Aged under 20      -9.9%

Aged 20-29            -8.8%

Aged 30-39           -5.5%

Aged 40-49          -4.3%

Aged 50-59          -3.8%

Aged 60-69         -4.0%

Aged 70+             -9.7%

Potential impacts on unemployment

• There are inherent challenges associated with relying on this new data to estimate changes in the unemployment rate. However, this represents the most comprehensive dataset available at this time and can be used to identify the potential magnitude of labour market changes. 
• Business NSW prepared the following estimates based on falls observed in the Single Touch Payroll data from the localised peak in February through to the falls experienced to the week ending 4 April. Regional estimates are calculated by applying state-wide industry estimates to regional employment by industry (these estimates do not capture any localised impacts).
• According to these estimates, 240,000 jobs could have been lost since the peak in February. This suggests the NSW unemployment rate could more than double to reach 10.2%. An offsetting factor may be if some workers exit the labour force, though this is a side-effect associated with a weaker labour market. The estimates may be understated as conditions may have deteriorated into April (and beyond), particularly as second-round effects start to flow through.

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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn

COVID-19: MARCH LABOUR FORCE SURVEY

• The unemployment rate increased to 5.2% in March (up from 5.1% in February. These figures are largely unaffected by COVID-19 (see below). The NSW unemployment rate increased to 4.8% (up from 4.6% in February). Employment growth has slowed dramatically in NSW reflecting weak conditions prior to the onset of COVID-19.
• Employment was steady in NSW, however unemployment increased due to increasing labour force participation (which remains high).

Unemployment Figures & Employment Growth graph

Impact of COVID-19

• These figures are largely unaffected by COVID-19 because the reference weeks were in the first half of March, before the introduction of additional social distancing measures and shutdowns of non-essential services. 
• The April labour force survey will provide a clearer picture of the true impact of COVID-19. In the meantime the ABS will release a new regular product based on employers’ payroll data.  The first issue of Weekly Payroll Jobs and Wages in Australia will be released on 21 April.
• Going forward it is likely that the true impact of COVID-19 will be clearer when examining hours worked (rather than the unemployment rate). Hours worked will provide greater visibility of impacts relating to employees taking leave, reducing their normal hours or where they are stood down due to COVID-19. The JobKeeper program will limit the increase in unemployment, though will be less effective at containing falls in hours worked.
  • The March data showed some early evidence of reduced hours worked.

Overseas arrivals and departures

Yesterday the ABS released overseas visitor arrivals data for February which showed a 30% drop in visitors to NSW compared to the same time last year. This was mostly attributable to the sharp drop in Chinese visitors during the lunar new year period.

NSW Visitor Arrival graph

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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn

COVID-19: NEW NSW GOVERNMENT GRANT

 • The NSW Government has announced a new grant of up to  $10,000 for eligible small businesses that did not benefit from previous payroll tax measures (see link). The grant will be funded through the allocation of $750 million into the Small Business Support Fund.

- The grant has been announced as ‘up to $10,000’. 
- It is not yet clear whether grant amounts will vary or how they will be determined. 

 • Business NSW has been advocating for a grant to support businesses that did not benefit from the payroll tax waiver. The grant will be a cash payment and can be used to cover overheads (such as equipment leases or utility bills) as well as financial or legal advice.

 • To be eligible, businesses will need to:

- Have between 1-19 employees and a turnover of more than $75,000; 
- A payroll below the NSW Govt 2019-20 payroll tax threshold of $900,000; 
- Have an Australian Business Number as at 1 March 2020, be based in NSW and employ staff as at 1 March 2020; 
- Be highly impacted by the Public Health Order 2020 (Covid-19 Restrictions on Gathering and Movement) issued on 30 March 2020; 
- Use the funding for unavoidable business costs such as utilities, overheads, legal costs and financial advice; and 
- Provide appropriate documentation upon application. 

• The grant is to be modelled on the small business bushfire support grant and businesses will be able to apply through Service NSW within a fortnight (applications open until 1 June 2020).

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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn

COVID-19: WAGE SUBSIDY ANNOUNCED

Jobseeker Fact Sheet here

 • The Government has announced a $130 billion JobKeeper wage subsidy.  Employers must be able to declare a 30 per cent revenue impact to access payments. 

• As Business NSW has argued, the wage subsidy is essential to keeping businesses connected with their staff and to avoid large job losses. 

 • Eligible employers will receive a fortnightly payment of $1,500 to pay to each eligible employee that was on their books on 1 March 2020 and is retained or continues to be engaged by that employer. Every eligible employee must receive at least $1,500 per fortnight, before tax.

•  Workers already laid-off: If an employee was employed on 1 March 2020, subsequently ceased employment with their employer, and then has been re-engaged by the same eligible employer, the employee will receive, at a minimum, $1,500 per fortnight, before tax.
• Workers paid less than $1,500: If an employee ordinarily receives less than $1,500 in income per fortnight before tax, their employer must pay their employee, at a minimum, $1,500 per fortnight, before tax.
• Workers paid more than $1,500: Employers must continue to pay employees according to prevailing workplace arrangements. Employees that are stood down must be paid, at minimum, $1,500 per fortnight.
• Superannuation:  Superannuation must continue to be paid as normal. It will be up to the employer if they want to pay superannuation on any additional wage paid (not already covered under existing workplace arrangements) because of the JobKeeper subsidy. 

• The payment will be administered through the ATO. Businesses can be advised to register their interest for JobKeeper updates on the ATO website.

Employer eligibility 

 • Eligible employers will be those with annual turnover of less than $1 billion who self-assess that have a reduction in revenue of 30 per cent or more, since 1 March 2020 over a minimum one-month period. Employers with an annual turnover of $1 billion or more would be required to demonstrate a reduction in revenue of 50 per cent or more to be eligible.

 • Eligible employers include businesses structured through companies, partnerships, trusts and sole traders. Not for profit entities, including charities, will also be eligible.

Employee eligibility

 • Full time and part time employees, including stood down employees, would be eligible to receive the JobKeeper Payment. Where a casual employee has been with their employer for at least the previous 12 months they will also be eligible for the Payment. An employee will only be eligible to receive this payment from one employer.

 • Eligible employees include Australian residents, New Zealand citizens in Australia who hold a subclass 444 special category visa, and migrants who are eligible for JobSeeker Payment or Youth Allowance (Other).

 • Self-employed individuals are also eligible to receive the JobKeeper Payment.

How to receive the payment?

 • Eligible businesses will be able to apply for the payment online and can register their interest for JobKeeper updates on the ATO website.

 • The program will commence today, 30 March 2020, with the first payments to be received by eligible businesses in the first week of May as monthly arrears from the ATO. Eligible businesses can begin distributing the JobKeeper payment immediately and will be reimbursed from the first week of May.

Jobseeker Fact Sheet here

Related articles by Mark Frost - Chief Economist, Business NSW
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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn

COVID-19: ABS SURVEY ON BUSINESS IMPACTS

26 March, 2020

 • The ABS has released results from a survey of 3,000 businesses conducted between 16-23 March.    

• The P&A will analyse results from Business NSW’s Business Conditions Survey (which contains a more comprehensive set of questions on COVID-19 impacts) once it closes later this week.

Incidence of Adverse Business Impacts

 • Approximately half of Australian businesses (49%) had experienced an adverse impact as a result of COVID-19 during the previous two weeks and 86% of businesses expected to be impacted in future months.

Over three quarters of businesses in Accommodation & food services (78%) reported that they had experienced adverse business impacts in the previous two weeks and 96% anticipated impacts over the coming months.

By contrast, businesses in Professional, scientific & technical services (21%), Electricity, gas and water supply (34%) and businesses in Mining (37%) were the least likely to have been adversely impacted by COVID-19 in the previous two weeks.

Nature of Business Impacts

• A reduction in local demand was the most common impact reported for the previous two weeks (82%) and was also the most common impact expected in coming months (81%). Of impacted businesses, over a third had experienced staff shortages (36%) and 59% expected to experience staff shortages in coming months.

View PDF with graphs 

Related articles by Mark Frost - Chief Economist, Business NSW
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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn

COVID-19: KEY AREAS OF CONFUSION AND PAIN POINTS

24 March, 2020

• The Policy and Advocacy team has continued to engage with businesses following the announcement of the upgraded Commonwealth package announced on Sunday.  This note updates on some key areas of confusion and uncertainty. 

PAYG subsidies: who gets it?

 • The Government announced a 100 per cent PAYG subsidy for employers.  The policy was announced as supporting business cash flow by up to $100,000.  This is the maximum amount businesses can receive. 

 • Businesses will receive the rebate automatically as a credit on their BAS statement.  No payments will be transferred to businesses. Businesses must have a turnover of under $50 million to be eligible.

Small business banking package

 • We are monitoring business experiences with the package of measures announced by the banks.

 • There have also been enquiries as to whether these hardship measures will be expanded to residential loans.  It is unclear at this stage however some banks have announced residential loan support measures.  

Rent support

• Support to cover rent is a major concern. So far there have been no major government announcements targeted to facilitate rent relief.

• It is understood that governments are considering options.  It is unclear at this stage what future support might be announced.

How long will the lockdown go for?

 • This is unclear and will depend on Australia’s overarching strategy.  The Prime Minister has suggested measures must be in place for at least 6 months and possibly more.

 • There are increasing calls for Australia to adopt more aggressive lockdown measures that can start to be eased once transmission rates are lowered.  While this model would require more drastic measures (such as closing all non essential businesses), it might facilitate greater certainty and a shorter lockdown period (though no strategy has certain outcomes).

 • These issues need to be considered carefully by the experts.

Information and advice

• We are aware of widespread confusion and lack of official information to support businesses.  This includes industry specific information related to combatting coronavirus as well as what types of support measures are available.

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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn

CASH RATE CUT AND OTHER MEASURES ANNOUNCED

20 March, 2020

• The RBA has announced a cut to the cash rate to 0.25%, quantitative easing, and other interventions in financial markets to support SME lending.

 • The RBA Governor will address the media at 4pm today.

• Measures include (see link above): 

- Cash rate cut to 0.25% (from 0.5%)

- A target for the yield on 3-year Australian Government bonds of around 0.25 per cent

- A $90bn term funding facility for the banking system, with particular support for credit to small and medium-sized businesses

- Exchange settlement balances at the RBA will be remunerated at 10 basis points, rather than zero as would have been the case under the previous arrangements

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For further questions or comments, please email Business NSW's Chief Economist, Mark Frost here, or contact him via LinkedIn