When the coronavirus pandemic first began significantly impacting Australian jobs and businesses back in March, the situation was dire. Projections of up to 3.43 million jobs being at risk were made and the Morrison government threw caution to the wind, unveiling the JobSeeker and JobKeeper programs in relatively short order.

Now as we head toward the end of what has been a tumultuous year, things appear to be looking up.

In recent weeks, there have been multiple data releases which have shown some very promising signs for the economy. The national accounts showed that the economy grew by 3.3 per cent in the September quarter, despite the lockdowns that impacted the Victorian economy during much of that period.

Meanwhile, figures from the ATO showed that 450,000 businesses have seen their turnover recover to the point where they no longer qualify for JobKeeper.

As a result, around 2 million Australians are no longer reliant on the JobKeeper program, leaving around 1.5 million workers still being supported by JobKeeper.

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Queues outside Centrelinks across Australia in March spelled disaster but it feels like Australia has turned things around. Picture Rohan Kelly
Queues outside Centrelinks across Australia in March spelled disaster but it feels like Australia has turned things around. Picture Rohan Kelly

Overall, you could be forgiven for thinking that things were on the fast track to normality and that this hardship-filled chapter of Australian history was entering its final act.

Like so many other economic crisis' in the better part of a generation, Australia seems like it has somehow dodged the worst of the economic pain, even while other nations face double digit unemployment and long, difficult recoveries.

But are we out of the woods just yet?

After the initial wave of government support for households and businesses was secured in an atmosphere of most dire emergency, the political imperative for the Morrison government to continue such an enormous level of support has faded.

With a stream of relatively positive economic data continuing to flow in, the drive to continue such unprecedented levels of support seemingly continues to evaporate with each passing day.

However, after around $257 billion in federal government stimulus and support measures alone, it's not really all that surprising that the economy is performing quite well, given how successfully Australia has managed the virus compared with most of the rest of the world.

To put this support into perspective, it's almost five times as much as the Rudd government's $52 billion stimulus package deployed during the global financial crisis. Back in 2008, the bulk of the Rudd government's stimulus was spread across multiple years, while today the vast majority of stimulus has been provided in just eight months.

When looking at the flows into the bank accounts of households the effect is clear, household incomes have skyrocketed despite the fact the economy was in its first recession in almost three decades.

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Government packages caused a spike in household incomes. Source: Commonwealth Bank.
Government packages caused a spike in household incomes. Source: Commonwealth Bank.

In short, the Morrison government's various stimulus programs have created a protective bubble for millions of households in which the recession was never really allowed to begin.

With household incomes remaining elevated due to hundreds of billions in government support still feeding through the economy, how it will fare when all that support is finally removed remains something of a mystery.

According to modelling from the Australian Housing and Urban Research Institute (AHURI) conducted by researchers from University of Adelaide and Curtin University, the hit to the labour market from the conclusion of JobKeeper could be profound.

Under the baseline mild scenario unemployment is forecast to rise to 8.7 per cent. For their more dire severe scenario, unemployment would rise to 15.1 per cent and 1.752 million Australians would find themselves out of a job.

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In a worst-case scenario, modelling shows Australia’s unemployment could reach over 15%. Source: Australian Housing and Urban Research Institute (AHURI)
In a worst-case scenario, modelling shows Australia’s unemployment could reach over 15%. Source: Australian Housing and Urban Research Institute (AHURI)

With Treasury currently forecasting unemployment to peak around 8 per cent, even the mild scenario coming to pass would prove an unexpectedly large hit to the labour market. Anything within the ballpark of the more severe scenario would be nothing less than a disaster.

Meanwhile, governments across the nation are increasingly looking for ways to pay for the enormous amount of stimulus expenditure.

In Victoria, the government is set to increase the number of speed cameras by 75 per cent, with revenue from speeding fines expected to increase by almost 60 per cent according to the recent state budget.

This comes amid reports from ratings agency S&P, that Victoria and NSW have had their coveted AAA credit ratings downgraded, prompting speculation the Federal governments may follow in the New Year.

As the ongoing trade and diplomatic tensions continue to rise between Beijing and Canberra, no discussion about the future of the Aussie economy would be complete without mentioning this rather sizeable elephant in the room.

According to an analysis from Citi, the ongoing trade battle between Beijing and Canberra could impact the ongoing economic recovery.

Under a scenario where Australia's exports to China dropped by 10 per cent, it was predicted total GDP would be reduced by 0.33 per cent. However, if the trade battle between Beijing and Canberra escalated to the point where exports to China dropped by 50 per cent, it could cost the economy as much as $76 billion (around 3.8 per cent of GDP).

 

With the OECD forecasting the Aussie economy to grow by 3.1 per cent in 2021, if this downside scenario was to be realised, the recovery of the economy in the New Year would effectively blunted entirely.

While it may seem like Australia has once again dodged the bullet, the road back to stimulus free economic reality has more than its fair share of uncertainty ahead.

Between all the various headwinds such as the conclusion of JobKeeper and the JobSeeker supplement, predicting how households will react to the recession beginning to really bite remains a challenging task to say the least.

Ultimately, despite the current confidence in a quick and relatively painless recovery, the path back to prosperity remains a challenging one, amid an increasingly uncertain world. How things will play out in the New Year remains anyone's guess, but if 2020 is anything to go by, we may get more than our fair share of surprises.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator

Originally published as Bleak outlook: 15 per cent unemployed



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