NSW Chief Economist Stephen Walters was an eager young economist when the last recession hit Australia in 1991, famously labelled by Paul Keating as the ‘recession we had to have.’ He is now guiding our State through the current recession. He describes our current state as a ‘back-to-front recession’, because for the first time government made the tough decision to close down the supply of services through the Covid lockdown.
‘Normal’ recessions happen the other way around, where demand (spending) dives, acutely affecting supply and employment. Instead, today and in the months ahead are driven by deliberate and targeted government intervention to control the Covid-19 pandemic and protect the health of its citizens.
NSW had been the best performing Australian State for over four years until the end of 2019 but has since fallen behind other States. As the engine room of the national economy, particularly in the tourism and education sectors, it took the biggest economic hit from the lockdown. The good news is, NSW has bounced back better than most other States, especially Victoria which is now in deep distress with a second Covid lockdown.
The impact of Covid includes a steep rise in unemployment with what was a steady 4 per cent unemployment transforming to an expected 8 per cent in the third quarter of 2020. Economic recovery will take time and further stimulus measures from Federal and State governments. Promising signs such as a jump in retail spending of 16 per cent in May are to be interpreted with caution, given that the increase was came from an almost zero base at the height of COVID in March – April.
The Federal and our State governments have done an admirable job of ‘flattening the curve’, allowing NSW to open for business more quickly. However, there is much more work to do to facilitate economic recovery and governments at all three tiers must continue to drive growth and employment. Rebooting the economy will need policy reform and investment in infrastructure and construction, as well as on key economic drivers of arts/cultural and domestic tourism programs. Getting the thousands of international students back into Universities will also play a big part in the State’s recovery.
Promisingly, recent surveys indicate that business confidence is higher in NSW than other States, and with no international tourism, it will be critical that domestic travel will more than make up for the revue shortfall for the many businesses in this sector – especially in regional areas.
Taking lessons from the last two recessions, it is employment that suffers for the longest period, so government, business, industry and trade unions must work collaboratively and consistently to get people into work and create jobs now and over many months ahead.
As an economist, Stephen is focused mainly on the numbers, but he is equally concerned with the need to monitor and mitigate the many social consequences of a recession including; mental health, homelessness, social dislocation, domestic violence and other crime.
Social challenges, along with unemployment and business recovery are all front of mind for governments and business, especially as programs including JobKeeper, JobSeeker and rent and mortgage relief are due to end in September. There are however positive signs with the Federal Government looking at ways to extend support with Treasurer Josh Frydenberg recently indicating there would be “another phase” of income support, to be announced as part of his economic and fiscal update which will be released later this month.
The lives and livelihoods of citizens of our State require a fine balance as we navigate our way out of the the back-to-front recession we had to have.
Sydney Business Chamber held an online forum with Stephen Walters, NSW Chief Economist, on 2 July, 2020.