Australia’s Unemployment Rate Expected To More Than Double By Summer

The Australian Bureau of Statistics, or ABS, said the country’s unemployment rate rose to 5.2% in March from 5.1% in February, but economists warned that the full impact of the coronavirus-related shutdown could at least double jobless figures by the summer.

Moreover, even the March figures already showed the underemployment rate at 8.8%, meaning 14% of the Australian workforce is underutilized.

"[The] data shows some small early impact from COVID-19 on the Australian labor market in early March, but any impact from the major COVID-19 related actions will be evident in the April data," said ABS chief economist Bruce Hockman.

Capital Economics senior economist Marcel Thieliant expects Australia's employment rate will soar to 12% in the next few months.

"The coronavirus didn't have a noticeable impact on the March labor market data but upcoming releases will show a sharp deterioration," he said. "The March labor force survey was conducted in the first half of the month and therefore didn't yet reflect the lockdowns that were imposed by several states towards the end of the month. However, unemployment won't remain contained for long."

Earlier this week, Australia’s Treasury Department forecast that the jobless rate will surge to 10% in the June quarter – meaning 1.4 million people will be unemployed – assuring the economy will enter a recession. (Australia was able to avoid recession even during the 2007-2008 financial crisis and has not had an official recession since 1991)

"The economic shock facing the global economy from the coronavirus is far more significant than what was seen during the global financial crisis over a decade ago," said Australia's Treasurer Josh Frydenberg. "Every arm of government and industry is working to keep Australians in jobs and business in business, and to build a bridge to recovery on the other side."

Prime Minister Scott Morrison also warned on Thursday that the unemployment rate will keep climbing.

However, the Treasury also noted that the unemployment rate would have jumped even higher, to as high as 15%, if the government had not introduced the 130 billion Australian dollar ($82 billion) wage subsidy program called JobKeeper.

However, despite the wage subsidy scheme, many workers may not receive funds due to the rules governing the program. For one thing, a company must record a 30% decline in earnings to be eligible for the subsidy.

Kaixin Owyong, an economist at National Australia Bank, said she expected the job picture to "deteriorate sharply in April… we expect a large rise in unemployment, which we forecast to reach 11.75% by mid-year.”

Owyong added: "Widespread reports of workers being [laid off] and hours being cut as businesses grapple with a sharp pullback in demand for their goods and services should result in a collapse in hours worked and a sharp rise in underemployment. We also expect labor force participation to fall in coming months as workers are prevented or discouraged from looking for work amid the coronavirus pandemic."

Jo Masters, chief economist at Ernst & Young Oceania, forecasts the jobless rate will climb to 10%.

"Underemployment and loss of hours worked will be important as it hits household income, which will impact spending behavior," she said. "The April Westpac [bank] Consumer Sentiment survey suggested that one in five workers have lost their entire income. Income is critical for assessing spending behavior of consumers."

Sarah Hunter, chief economist for BIS Oxford Economics, warned that as most Australians lose their jobs, most people will struggle to pay their mortgages – to levels surpassing those of the 2008-2009 financial crisis.

Su-Lin Ong, chief economist at RBC Capital Markets, agreed April data will provide a more accurate picture of employment in Australia.

"Hours worked will be a key gauge of the health of the labor market and total income pie, with many on the JobKeeper [subsidy program] likely to be counted as employed but with substantially reduced hours, possibly zero, in the coming months," she said. "Similarly, the underemployment rate will likely rise substantially given that the nature of this shock disproportionately hits sectors that are more part time… in nature."

Meanwhile, long lines have appeared outside the offices of the government's welfare agency, Centrelink.

"This is my very first visit to a Centrelink office. It is horrible," said Chris Dawson, who stood in line in the Sydney suburb of Brookvale. "I am almost 60 and I have never been unemployed in my life. I am devastated. We have four adults in our family and three of us are unemployed as of this week.”

Tim Harcourt, an economist at the University of New South Wales Business School, warned that Australia and much of the developed economies have entered uncharted waters.

"It's the end of globalization as we know it," he said. "All major economies have been hit almost at once by [the] impact of the coronavirus and it's done damage to global supply chains in manufacturing and even more to people-based industries like education and tourism."

Australia currently has 6,351 confirmed cases of COVID-19, while 61 people have died from the virus.

"For many young and old, 2020 will be the toughest year of our lives," warned Prime Minister Morrison.

An unintended consequence of the pandemic has been the mass exodus of some immigrants and temporary visa holders who will not receive government funding. Since January, more than 300,000 temporary residents have departed Australia, while another 300,000 are expected to leave.

Abul Rizvi, a former senior official of the Immigration Department, projected the number of temporary visa holders in Australia may plunge from more than 2.4 million to less than 1.82 million by year end.

Rizvi also estimated that at least one in five foreign students, and one-fourth of all foreign workers will return to their native countries by the end of the year,