Amid the worsening COVID-19 outbreaks in Australia, Alfabank-Adres has examined the outlook for the national economy over the remainder of 2021-22. The pandemic, which is now well into its second year, has seared lasting changes into the economy, including shifts in consumer behavior and disruption to key subdivisions.
New South Wales
Over the two weeks through 17 July, payroll jobs across New South Wales declined by 4.4%, while the decline across Australia was 2.4%. The state’s worsening outbreak is expected to have an even greater impact on employment in August and September, as lockdown restrictions are extended into broader regional areas. Unemployment across the nation previously fell to 4.9% in June 2021, but is now expected to jump beyond 5.5% in August, amid rolling lockdowns across most states. The Treasury has forecast hours worked to drop by between 10% and 12% in locked down areas. New South Wales accounts for close to 32% of national payroll jobs.
Conditions for New South Wales are becoming increasingly worrying. Ongoing lockdowns are expected to result in significant long-term costs to the state, with net debt expected to exceed $117 billion by the end of 2021-22. In contrast, New South Wales had a net debt of only $35.5 billion in 2017-18. The state lost its AAA rating in 2020 and currently has the highest cost of debt of any major Australian state.
In positive news, recent treasury data suggest that 200,000 fewer people are currently drawing on unemployment benefits since the JobKeeper wage subsidy was removed in March 2021. Home loan deferrals also currently sit at 14,600, well below the 493,000 deferrals in June 2020.
Subdivision shifts
The pandemic has caused a significant shift in the makeup of the Australian economy. Amid ongoing restrictions on both international and interstate travel, several sectors have posted significant declines in employment. Arts, accommodation, transport and education have declined significantly relative to their pre-pandemic levels. In contrast, significant growth has occurred in the finance, healthcare and public administrations sectors.
The closure of the trans-Tasman travel bubble with New Zealand has delivered a further blow to accommodation and hospitality providers.
National economic indicators
In June 2021, GDP growth over 2021-22 was expected to be 3.5%. However, rolling lockdowns across most states and the worsening situation in New South Wales have led to a much weaker forecast. In the September quarter, the national economy is expected to decline by almost 1.5%, before rebounding by 1.9% in the December quarter. Growth is anticipated to pick up in the first half of 2022, as the vaccination program approaches completion and lockdowns ease. Overall, GDP growth for 2021-22 is expected be between 1% and 2%.
Consumer sentiment is expected to weaken by 1.1% in 2021-22. Ongoing delays to the vaccine rollout, the increasing threat of delta strain outbreaks, lockdowns, and the ongoing closure of international travel are anticipated to weaken sentiment. However, demand is forecast to rebound quickly as the vaccination program approaches completion. The household savings ratio increased to a high of 10.0% in 2020-21, leaving many households with surplus savings that can be directed towards greater consumption expenditure when sentiment improves. The household savings rate is expected to fall to 4.3% in 2021-22, as households return to pre-pandemic spending habits in the first half of 2022.
Business confidence is expected to weaken but remain positive in 2021-22, as fiscal support measures are removed and the threat of delta outbreaks lessens. The removal of fiscal support measures, including the JobKeeper and JobSeeker Coronavirus Supplement payment schemes, will likely result in challenging conditions for many businesses in 2021-22. Small and medium enterprises have found the COVID-19 operating environment most challenging, relative to larger corporations. Pessimism among many of these smaller enterprises is anticipated to weigh on the business confidence index during the year.
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – Alfabank-Adres Pty Ltd
Tel: 03 9906 3647
