On paper, the economy is expected to return to growth in the September and December quarters, but off an incredibly low base. While a return to growth is obviously necessary and welcome, this won’t be enough to undo the lasting damage that’s been done to the economy and the labour market so far this year.
 
Part of the story is the difference between the rate of growth and the level of GDP. While there is likely to be a strong initial rebound in growth following the easing of restrictions, it will take some time for the size of the economy to return to pre-crisis levels or to fill the hole in GDP that’s been left by the crisis.
 
This country has only experienced three recessions in the past 38 years. After the 1980s recession it took nine quarters to return to pre-recession output levels, while after the 1990s recession it took six quarters to recover lost output. The Reserve Bank of Australia is expecting a similar pattern this time around, with the economy not returning to its pre-COVID-19 size until the end of next year.
 
Even this is subject to considerable uncertainties. Some of them are on the health front, with risks of subsequent outbreaks, and the availability and distribution of a vaccine. Others relate to developments in the global economy, consumers’ willingness to run down savings and spend again at home and whether the government can judge the right way and time to withdraw economic support when private activity is ready to replace it.
 
Within the next fortnight we’ll get the latest GDP scorecard with the release of the National Accounts. Many economists expect growth numbers as high as one or even two per cent in the coming quarters. The Prime Minister and Treasurer will pat themselves on the back. But an economy still smaller than before means higher unemployment for longer.
 
That’s not to dismiss early signs of recovery, including this week’s welcome increase in employment in October, with nearly half of new jobs in Victoria. But we shouldn’t be surprised at all to see a rebound in jobs, confidence and activity as parts of the economy emerge from hibernation.
 
Most economists still expect that hours worked in the economy will be down on pre-crisis levels for some time, underemployment high, wages growth weak, business investment sporadic, with many businesses reluctant to take on more debt.
 
That’s why, for many Australians, what looks like a solid recovery on paper next year will still feel like a recession. Some will recover their jobs and small businesses – and we should celebrate that. But others will be victims of this recession – and the policy misjudgements which deepened it – for some time to come.
 
Even those milder recessions of the early 1980s and ‘90s were accompanied by the long tail of persistently high unemployment. This time around, the Treasury says it could take something like five years to get unemployment back to around five per cent. This is still above some estimates of full employment and doesn’t reflect our chronic underemployment challenge.
 
Our main task is to prevent today’s spike in unemployment turning into tomorrow’s long-term unemployment – concentrating in communities of disadvantage and cascading through the generations.
 
This reminds us that the economy is not abstract numbers on a page, but what is happening to real people in real communities; their capacity to put food on the table, school shoes on their kids’ feet, and pay the rent or mortgage.
 
As Australia emerges from a deep recession into a patchy recovery, economic policy becomes more, not less, consequential. We need to ensure the government doesn’t withdraw support too early and that it understands that getting that wrong is almost as problematic as getting the introduction of policy support wrong in the first place.
 
With a Prime Minister that justifies cuts to JobSeeker by saying “we cannot allow the lifeline that has been extended to also now hold Australia back”, the portents are not good. On what planet does helping the growing ranks of the unemployed, in an economy starved of spending power, constitute holding the country back?
 
The real test for the government is not only how quickly growth rebounds in the coming quarters but how its policy response tackles the jobs crisis and strengthens and broadens growth in the months and years ahead.
 
Budget considerations are important, but we need to recognise that we won’t fix the Budget without fixing the economy. We won’t fix the economy without fixing the labour market. And we won’t fix the labour market unless we deal with barriers to returning to work, modernise our energy mix so it’s cleaner and cheaper, and ensure we get more jobs and apprenticeships from the hundreds of billions of dollars governments spend on big defence, rail and other infrastructure projects.
 
That’s why the alternative Budget approach outlined by Anthony Albanese is so important. It recognises that responding to this recession, kick-starting the recovery, and reimagining the future are three equally important tasks which don’t mean putting the cue in the rack with the first positive quarterly growth number.
 
We need the economy to be bigger, better, more inclusive and more sustainable after the pandemic than before. That means a more grounded understanding of the patchy path ahead, and a different approach to deal with it, is required.
 
This piece was first published by the Australian Financial Review on Tuesday, 24 November 2020.