July 22, 2021 by Dymphna

Are we headed for a double-dip recession?

Are the current round of lockdowns going to undo the Aussie economy?

So with over half the population of Australia under some sort of lockdown, has our luck finally run out?

Is this the end of our dream run.

I don’t think so… yet. But the clouds are definitely looming.

Westpac’s greybeard Bill Evans reckons that the current lockdown will cost a thumping $8 billion and should see us post a fall in GDP of around 0.7%.

And that’s if things don’t drag on for too long – and this delta variant is proving to be a bit of a tricksy beast.

Evans reckons we should come bouncing back in the December quarter, but if lockdown drags on for longer than we expected, then we could easily get a negative print and find ourselves back in recession for an ‘double-dip.’

Obviously, that’s not great news.

But let’s remember why recessions suck. It’s not that we have less stuff – though that’s technically what it means.

They suck because we when produce less stuff we need less people to do the work, and unemployment rises.

It’s unemployment that we’re really worried about.

And we’re worried about it first and foremost because being unemployed is not fun. It can be brutal. It can create scars in a life that can take years to heal.

That’s no good.

But it’s also unemployment that creates some nasty flow on effects. When people lose their jobs they start cutting back on spending. That flows on to the broader economy.

If enough people become unemployed then you can also see that start to drag on asset prices – maybe even (God forbid) house prices.

So it’s worth remember where things currently stand when it comes to unemployment.

And the truth is, we’ve currently got one of the best and tightest labour markets in years.

The lockdowns will knock some of the wind out of that, but our starting position is strong. Really strong.

The labour data for June came out last week, and though this doesn’t capture the recent lockdown in Sydney, it showed the unemployment rate was now down to 4.9% – the lowest level in a decade.

It also showed us when Victoria went into lockdown, the first impact was on the amount of hours worked, with people largely hanging onto their jobs, but working fewer hours.

That keeps the unemployment rate down.

Looking forward, we also know that employers remain hungry for workers. On the jobs website Indeed, job listings are up over 50% since Covid started.

As a result, the ratio of unemployed people to the number of job vacancies is at the lowest level on record (going back to 1996).

So long story short, the current round of lockdowns are mashing into an economy that is actually running pretty hot.

And so yes, it’s going to have an impact. The longer it drags on, the worse that impact is going to be.

But I don’t see it undoing all the good work that’s happened in the Aussie economy over the past twelve months.

The economy should weather this one pretty easily.

DB.