Policymakers in Australia and everywhere else are now learning that COVID-19 is a resilient and aggressive disease. It can bide its time, lurk undetected and then seize any opportunity — any moment of poor discipline or weakness — to begin spreading again.
While we’re nowhere near as bad as the disaster that is unfolding in the US, we’re suffering our own relapse that has much of Melbourne locked down. And as a result, both globally and domestically, there will continue to be significant headwinds for the Australian economy.
That was underlined last Thursday by the May trade data.
Beneath a positive surface, the data showed an economy struggling with weak domestic and foreign demand. The trade surplus of $8 billion for May was the 30th monthly surplus in a row, but it was driven by a fall in the value of imports to a seven-year low in May.
Compared to December 2019, imports have slumped 22.6%. That includes motor vehicles: the value of cars imported in May slumped by $829 million or 47% from April. That offset weak demand in global markets; exports slumped to their lowest value in almost two years. The Reserve Bank’s commodity price index for June fell back to September 2018 levels.
A 12% rise in the value of the Aussie dollar in the June quarter was a factor, yes, but there was a sharp fall in coal prices too. Iron ore prices have held up well, thankfully, and rose to more than US$100 a tonne in June, but that was still more than 12% lower than this time last year.
Of greater concern was that the ABS reported there was only a 1% rise in total payroll jobs between mid-May and mid-June, suggesting the initial job gains from reopening have been locked in, and from here things might be more sluggish. So far we’ve only got back around 30% of the jobs initially loss to lockdowns, the ABS pointed out. Payroll jobs are still 6.4% below mid-March.
In the US, Donald Trump was boasting about another big jobs number in the June unemployment report (4.8 million). This saw the unemployment rate fall to 11.1% from 13.3%, but the data was gathered in the middle of the month just as several large states states were returning to lockdown.
Even so, 31 million Americans are still collecting unemployment benefits weekly, with another 1.43 million people filing for state unemployment benefits this week — down just slightly from 1.48 million last week.
The bottom line is that the US lost more than 22 million jobs during the height of the pandemic and has only restored 7.5 million of them in the past two months. Like us, the US has its own fiscal cliff: America’s jobs benefit packages start running out on July 31.
Here, the focus seems to be more on what reforms the government should be pursuing, rather than what it should do when its programs expire in September.
Reserve Bank deputy governor Guy Debelle made an overlooked contribution on that issue in a speech last week:
There is considerable uncertainty over the path from here. This uncertainty includes the behavioural responses as health restrictions are eased. There is also considerable uncertainty about the future, which will affect the decisions of businesses and households.
It has taken a long time to recover from large declines in the economy in the past. The cause of the decline this time is much different from those in the past. Many of the imbalances that exacerbated declines in previous downturns are not present this time. But it is still quite likely that this decline will have a long-lived impact that will require considerable policy support for quite some time to come.
The sentence “many of the imbalances that exacerbated declines in previous downturns are not present this time” received no attention — certainly not at outlets like the AFR, which incessantly beats the drums calling for wage reductions, company tax cuts and deregulation.
Debelle’s point is that some of the structural weaknesses that helped bring on, or aggravate, past recessions aren’t present this time: there’s been no early ’80s wage blow out, no inflationary surge requiring a crushing surge in interest rate rises to control an asset boom in housing or commercial property as there was in the early 1990s. There’s no impending disaster in the financial sector as there was in major markets before the financial crisis.
What there has been, of course, is a lot of wage stagnation that meant economic growth slowed to a crawl even before the virus. And the advocates of economic reform want not just stagnation, but real wage cuts, and a higher GST, to somehow spark a recovery.
These ideas of austerity, deregulation and punishment of workers are resilient and aggressive. They defy all evidence that they don’t work and they continue to lurk out of sight, for years if need be, waiting for any moment of policymaker weakness to start spreading once again.
And now, here we are, facing another outbreak.