The idea of a strong, V-shaped economic recovery that has been the belief of the Federal Government, some economists and business media, seems to be fading as the COVID-19 driven slump in the wider economy appears worse than forecast in some areas.
Rather than describe a strong and immediate recovery as a V-shape, some in the government used the phrase, ’snapback’. That is now out.
The fall in retail sales seems to be deeper than some had previously thought (and the 18% slide in May, on top of the 8.3% rise in March) makes it hard to see how a V-shaped recovery in consumer spending could every be considered.
The jobs market remains very weak, despite help from JobKeeper (which will help make GDP look better than it actually is).
Federal Treasury Secretary to the Steven Kennedy told a Senate Committee hearing yesterday that instead of a V-shaped rebound, it would be more of a U-shaped recovery.
That means the economy will be slow to emerge from the lockdown and regaining previous levels of activity will take longer.
At the same time Dr Kennedy indicated he didn’t see an immediate fix for rising unemployment, saying he was expecting unemployment to continue to climb through the next couple of months.
Job figures last week showed almost 600,000 people left the jobs market in April while the official jobless rate rose to a less-than-expected 6.2% (It was actually 11.7% including those on JobKeeper).
At the start of the pandemic, the Morrison government talked of an “economic snapback” that hoped to occur as businesses re-started and people returned to their jobs.
But Dr Kennedy said it was likely to take some time for the economy, and the jobs market, to get back to normal.
“I’m not predicting a V-shape recovery. But given the nature of the shock – if the government responds well with its fiscal levers, we needn’t have an L-shaped recovery, which is what people would think when it comes to a depression,” he told the Senate Committee.
And a fellow believer is the RBA Governor, Dr Philip Lowe.
He told a finance conference yesterday (via an online address) that any recovery will much will depend on the confidence of businesses and consumers to get back to normal.
He said uncertainty was at an extreme level for businesses and consumers and this uncertainty included when restrictions, imposed to stop the spread of the coronavirus, would be eased.
“The faster that the restrictions can be lifted safely, the sooner and stronger the economic bounce-back will be and the less economic scarring will take place,” he said.
But Dr Lowe said another source of uncertainty was how consumers and businesses responded to the events of recent months.
“Another source of uncertainty is the level of confidence that people have about their future, both in terms of their health and their own finances,” he said.
“This points to a critical issue for us here in Australia: that is, restoring people’s confidence on two fronts.
“The first is the confidence that we can go about our lives and remain healthy. And the second is the confidence that we will have jobs and incomes and the economy will grow strongly again.”