Despite unemployment falling to pre-pandemic levels, the central bank still thinks it’s too early to count its chickens on the success of the nation’s economic recovery.
Addressing the Australian Farm Institute Conference on Thursday, RBA governor Philip Lowe said efforts over the past year to “build a bridge to the day when the virus was contained” had been “the right strategy” for Australia’s economy, which was now bearing out in the nation’s GDP and employment figures.
“Today, the level of employment in Australia is above its pre-pandemic level. In the United States, employment is still nearly 5 per cent below the pre-pandemic level and in Spain it is 3 per cent below,” Dr Lowe said.
“The level of output in Australia is now above its pre-pandemic level; not many other countries are in this same position. The bounce-back has been quicker and stronger than was widely expected; back in August we did not expect the previous level of output to be regained before the first half of 2022, yet here we are already.”
The comments came as the latest Australian Bureau of Statistics data indicated unemployment had fallen to 5.1 per cent in May, its lowest level since February 2020 and ahead of Treasury’s forecasts, which had unemployment reaching 5 per cent only at the end of 2022.
While the RBA warned at its June monetary policy meeting that there was still too much slack in the labour market to generate wage growth, Treasurer Josh Frydenberg said the government was hopeful the ahead-of-schedule unemployment numbers would put pressure on employers to hike wages.
“One of the ways we are boosting wages is by seeing unemployment come down so we get more competition for labour,” Mr Frydenberg told a press conference on Thursday.
“By driving unemployment below 5 per cent – which the budget expected to be at the end of next year, and these numbers are ahead of expectations – we will start to see more competition for labour.”
However Dr Lowe sought to tamp down expectations of a prolonged recovery in his speech, pointing out that the short and long-term economic shifts caused by the pandemic were still being felt across many industries.
“As positive as these outcomes are, it is important not to lose sight of the fact that we are still in the recovery phase. Our international borders are still largely closed, outbreaks of the virus are still leading to periodic lockdowns, and many firms are still adjusting to changes in how people spend their money and where they work,” Dr Lowe said.
“It is also worth recalling that the economic recovery is being underpinned by unprecedented fiscal and monetary policy measures that will not last forever. So we still have a way to go before the recovery is complete.”
Mr Frydenberg also conceded that Australia’s success at keeping momentum going on the recovery “will depend on our ability to suppress the virus”.
“That means following the health restrictions but it also means rolling out the vaccine – that is what we’re seeking to do as more supply becomes available,” Mr Frydenberg said.
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