NSW economy benefits from opening up has been saved
NSW economy benefits from opening up
The outlook in August 2020
The NSW economy is expected to outperform the national average, but the outbreak in VIC is a reminder how quickly things can change. The story is varied across the state with many regional areas in a vulnerable position. Place based support may aid the recovery in these areas.
After a terrible fire season that hurt many regional areas, COVID-19 has sent the state into a recession along with the rest of the country. But the state has done a pretty good job to date in beating back the virus, with some parts of its dominant service sector opening up quickly and government infrastructure projects kicking into gear. So, when it comes to 2020, economic activity is expected to contract in the state, but it will remain in the top half of the pack heading into 2021.
Expected economic growth across States, 2020
Easing restrictions are helping NSW jobs
The labour market has been hit hard by COVID-19, and NSW has not been immune. Between 14 March and 11 of July NSW payroll jobs have fallen 5.3%. Job losses have been felt most acutely in the tourism and entertainment sectors with jobs in arts and recreation services down 18.1% over the same period.
There has been some improvement since the trough reached in April, as restrictions ease and confidence returns. NSW has risen from one of the largest job losses by the end of April, second only to Victoria, to now above the national average. If restrictions continue to ease, there is upside potential for job growth. But with a second wave threat at the border and business confidence under pressure, there are early signs that some of the recovery is coming under pressure, with jobs and wages dipping in the early weeks of July.
NSW job and wage index, March 14=100
It is NSW’s youngest workers that felt the brunt of job losses early in the piece and are now feeling some relief as restrictions ease. Younger workers tend to hold less secure roles, including a higher proportion of casual positions. In addition, they make up a large share of the industries that have experienced the most difficult trading conditions. But as restrictions lifted in NSW over May and June, this cohort has experienced 12.3% growth in jobs over June alone.
Those young people accessing JobKeeper are also benefitting. Payroll data indicates that wages for workers under 20 has actually risen 25% in NSW, compared to the average decline of 4.7%. This is likely to moderate as the tiered payment is introduced in September. This is likely due to JobKeeper, which has meant that many younger workers are receiving higher wages than they would otherwise have expected. Instead, most of the wage pain is being born by the older cohort, with wages falling significantly for those aged in their 40s.
Worst job markets in regional NSW begin to improve
Job losses have hurt all NSW regions, but it is NSW’s northern coastline that first bore the brunt of the downturn. Coffs Harbour – Grafton and Mid North Coast have registered the largest job losses across the country, with the number of jobs falling 11.2% and 11.8% between 14 March and 18 April. The heavy reliance on tourism is a key driver of the harsh outcome, as small local populations are unable to support activity to replace the lost revenue from visitors. With restrictions eased through May and June, including the restart of regional travel, there has been a substantial recovery in the region’s job market. The border region with QLD still remains under pressure, with payroll jobs still more than 8% below pre-COVID levels in that area.
The coastal regions that have suffered the most from travel bans could also benefit significantly from increased domestic tourism. International visitors to regional NSW accounted for just 5% of total tourism spend in 2019, with the bulk coming from Australians on holidays. The key to the outlook for NSW’s regional businesses relying on the tourism sector is the state’s ability to contain future outbreaks and continue to open its borders to the rest of Australia. There is lots of upside potential, but any second wave could derail a fragile recovery in the sector.
The closure of the city is hurting the job market. With many businesses still encouraging working from home, and the city much more exposed to interstate and international markets, the city’s retail and hospitality sector is struggling to recover. Indeed, jobs remain more than 10% lower in the Sydney city and inner south region.
Regional job losses since 100th COVID case
Fiscal measures are supporting regional communities but place based support is needed
The government’s raft of fiscal measures are providing much needed support for people and businesses. But those regions relying heavily on these support programs may find an unpleasant surprise as payments are decreased overtime. Instead, there is a role for place-based investment into regional economies to support the recovery.
Money in people’s pockets, either via JobKeeper or JobSeeker, means money to pay bills and purchase goods and services. In some cases, people are receiving more income than usual either because they were previously on income support that has been increased and includes additional one-off payments, or because JobKeeper is larger than their usual take-home pay.
Richmond-Tweed region has the largest reliance on fiscal support measures, with 44% of businesses receiving JobKeeper payments and 11% of the working aged population receiving JobSeeker or Youth Allowance. This region includes Byron Bay and Mullumbimby, tourism destinations that have struggled under tightening restrictions and border closures. The opening of intrastate travel has provided some support, with interest in these holiday destinations picking up more recently.
It’s not just the newly unemployed that are benefitting from increased government support. The nearly quarter of a million people already on NewStart prior to the COVID-19 crisis have also received the two additional $750 payments as well as an increased monthly income payment. For regions such as Far West and Orana which had an already high proportion of the working aged population on NewStart (7.1%), the additional boost to incomes is likely to be spent quickly, which may be supporting the region’s retail sector.
While the uptake of government support measures is good in the short run, it leaves many regions exposed as payments are wound back. While JobKeeper and JobSeeker won’t finish cold turkey, there is a clear path forward for reducing reliance on the programs which may result in a pullback of spending as households face the reality of lower income and job insecurity.
Targeted industry policies are already underway. Packages such as the $250 million JobMaker program aims to provide much needed support to the creative industry, while the $688 million HomeBuilder grant scheme aims to shore up demand for the construction sector. Meanwhile, the $2 billion JobTrainer program aims to upskill or reskill the workforce for the recovery path. There is potential for these types of programs to provide some support to businesses and households under pressure in NSW’s most vulnerable regions. But they also miss the interdependencies between industries that occur in regional areas reliant on only a few industries for growth.
It is also important for government to consider support measures on a regional basis. This means going beyond industry specific packages towards policies and stimulus packages that engage with local business and community groups to support regional skills development and business resilience. The City of Geelong has established a COVID-19 Arts Recovery advisory panel given the important contributions the sector makes to its local economy. This panel aims to work with local artists and representatives to enable the council to better respond with programs designed for the global community. Not only could regional packages plug the short-term holes in demand, they also help build skills and capabilities in the longer-term and ensure a thriving economy emerges from the downturn.