With the RBA’s April statement confirming that the economic recovery in Australia is well under way, it’s clear that the recovery is stronger than had been expected by many. The unemployment rate fell to 5.8 per cent in February, with the number of people with a job returning to pre-pandemic levels. GDP increased by a strong 3.1 per cent in the December quarter, boosted by a further lift in household consumption as the health situation improved. The recovery is expected to continue, with above-trend growth this year and next. Household and business balance sheets are in good shape and should continue to support spending.
Nevertheless, wage and price pressures are subdued and are expected to remain so for some years. The economy is operating with considerable spare capacity and unemployment is still too high. It will take some time to reduce this spare capacity and for the labour market to be tight enough to generate wage increases that are consistent with achieving the inflation target. In the short term, CPI inflation is expected to rise temporarily because of the reversal of some COVID-19-related price reductions. Looking through this, underlying inflation is expected to remain below 2 per cent over the next few years.
The AFR headline of 27th March of ‘JobKeeper end won’t ‘derail’ recovery’ was welcome news to many who work with and within the SME sector. With more than 1m employees and 370,000 businesses still receiving JobKeeper support at the end of January, the end of Government support was widely predicted to dent the sharp economic recovery post-COVID. With all support initiatives now at an end, the key issue now remains how to create the ‘right’ jobs, increase productivity and cement employee and customer engagement through growth in the context of changes driven by the COVID-19 period.