Saturday, December 12

Impact of COVID-19 on the Australian Economy

Compared with the rest of the world, Australia has managed the COVID-19 pandemic well. Cumulatively, there have been relatively few cases and deaths per capita, and there is currently little if any local transmission of the virus. 

Nonetheless, the Australian economy has experienced its largest contraction in at least 60 years. In the next chart, we can see the blue line, representing growth in the size of the economy, dips lower than ever since the ABS has been collecting this data.

While the economy is no longer in recession, it remains 3.8 per cent smaller than it was a year ago. Normally, it grows by around 2 per cent each year. 

Supporting economic growth has been substantial government spending on payments to individuals. Unemployment benefits have almost tripled from where they were, and total Commonwealth social assistance payments are up by around $15 billion every quarter.

Household expenditure, in part supported by government payments, has contributed to the economic improvement in Q3 2020. But spending by category is very mixed, and the spending patterns for Victoria, with its extended lock down, differ from the rest of Australia. Of interest is the increased spending on food and alcohol, and the decreased expenditure on hotels, cafes, transport and vehicles. The impact on health spending is also worth noting.

We can also see the impact of the COVID-19 recession on industry sectors. We can use the Gross Value Added (GVA) table from the National Accounts to identify the industry sectors that have been most impacted by the pandemic. Construction services are down \$2.5 billion/quarter, as is air transport. Accommodation and food services were down \$4.5 billion in Q2 and \$2 billion in Q3. Property operators and real estate services were down \$2.5 billion in Q2 and \$1.5 billion in Q3. Administrative support services are down \$3.5 billion/quarter. Health care and social assistance had a \$3 billion drop in Q2, but this recovered in Q3. The airline industry has suffered the biggest percentage drop.

We can also see the mixed impact of COVID-19 on the economy in the retail turnover data. Again we can see the impact of the second lock down in Victoria.


Turning to the labour market, the unemployment rate has risen from 5 to 7 per cent as a result of the pandemic. With the unemployment rate for men and women rising similarly. 

The participation rate was hugely impacted by the pandemic, but much of that impact has now reversed. In April and May, proportionately more women left the labour market than men.

While part-time employment numbers appear to have recovered, the number employed full-time remains below the pre-pandemic levels. The number in the labour force has largely recovered.

In aggregate, men and women are working fewer hours than before the pandemic. In April and May, women experienced a proportionately larger reduction in hours worked compared with men, but this is no longer the case. 

In terms of ages, it looks like younger workers have been most impacted by COVID-19.

The extended lockdown has had a bigger impact on the Victorian labour market.