800,000 jobless in 16 months

geordie

Tim Colebatch
February 4, 2009
THE Treasury has stopped short of forecasting that Australia is heading for recession, instead predicting that the economy will grow by a minimal 0.75 per cent next financial year — while unemployment climbs to 7 per cent.

The figure implies that within 16 months, roughly 800,000 Australians will be unemployed, up from 500,000 last December, and that unemployment by mid-2010 will be almost double the 458,000 officially out of work a year ago.

But Treasury's forecasts imply that the worst of this slump — which it is not yet ready to call a recession — could lie even further ahead. It sees employment skidding downhill in coming months, then remaining flat over 2009-10 while unemployment grows by almost 20,000 a month.

The recession of 1990-91 really began in late 1989, but unemployment did not peak until three years later, by which time it was 11 per cent.

The International Monetary Fund last week forecast that this will be the worst global slump since the Great Depression of the 1930s.

The Treasury forecasts released yesterday are stun-ningly different from those it put out three months ago. At the time, the global economy was crashing around us, and business sales were slumping, yet the Treasury told us it would do no more damage to Australia than the introduction of the GST.

It sees a different world now. It forecasts that business investment will be flat over this financial year, then crash by 15.5 per cent in 2009-10. Consumer spending, which makes up 60 per cent of economic activity, would grow just 0.5 per cent.

Export volumes would grow just 0.5 per cent next year, while prices would crash, pushing the terms of trade down and the current account deficit up.

Total spending in the economy would actually shrink by 0.25 per cent, the Treasury predicts, and the only reason output would rise is that with business buying fewer machines, the import share would fall.

The Treasury does not publish its estimates of population growth. But if one assumes the population grows by 1.5 per cent a year, that would imply that GDP per head — the real bottom line of the economy — would fall by 0.5 per cent in 2008-09, and a further 0.75 per cent in 2009-10.

But it would not be a bad time for those who keep their job. Treasury expects inflation will be down to 2 per cent by June, and stay there, whereas hourly wages will rise 3.75 per cent this year and 3.25 per cent next year. Those in work will be better off than ever.