A formal review of the JobKeeper and JobSeeker schemes has just been completed by Treasury Secretary Kennedy. The results of that review are set to be released as part of the government’s upcoming Economic Statement on Thursday 23 July. The Economic Statement will also include formal economic forecasts for the next two years.
Well-sourced media over the past fortnight have suggested the JobKeeper scheme will be wound back along with a paring back of the JobSeeker supplement. Whether the JobKeeper scheme will be allowed to completely expire, or a gradual phasing out via tweaking turnover thresholds and continuing to support some industries is unclear.
We would argue for a phased tapering of JobKeeper and greater targeting to businesses that are still in the hibernation phase. The quicker than expected easing of restrictions (bar Victoria) has seen a sharp pick-up in economic activity driven partly by pent-up demand. Victoria’s virus resurgence though warns the pandemic is ongoing and that the “bridge to recovery” may be of an unknown length and may need to be extended. Specific industry sectors exposed to international travel are also unlikely to come out of hibernation until border restrictions are gradually eased.
A loss of household income is a natural consequence of reduced government support (from extraordinary levels) at a time of elevated unemployment. That though does not need to derail the recovery if containment restrictions continue to be eased and business activity picks up as we have seen recently in the high frequency data. In this respect the recent resurgence of the virus in Victoria is worrying, as this will reverse some of the gains in that state. It is hoped that new lockdowns will bring the virus back under control in the next few weeks. This is a crucial short-term issue for the Australian economic outlook and a key test of the test and trace strategy.
The week ahead
Australia: Victorian COVID-19 numbers and the RBA meeting on Tuesday are the key highlights in a quiet week. Melbourne’s suburban lockdowns were extended to two further postcodes, the border between NSW and Victoria will close from tomorrow, though other restrictions outside of Victoria continue to be eased. As for the RBA, the meeting is a likely non-event with rates on hold as it assesses the pace of recovery. We will also be watching out for the possibility of China levying additional tariffs with tariffs on milk powder reportedly being considered amid elevated tensions.
International:CH: the CPI/PPI is on Thursday, while international reaction to the new Hong Kong security law and any impact on the US-China phase one trade deal will also be closely watched. US: virus count numbers and high frequency data under scrutiny to see whether the pace of recovery is starting to slow. Thursday’s jobless claims will also be viewed in this light with some states halting and/or reversing recent re-opening efforts. The non-manufacturing ISM out later today should see a strong rebound. EU: A virus resurgence in Spain and EU budget talks are the focus in a light data week.
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Charts of the week
Vic sees a virus upsurge and is also experiencing the weakest recovery.
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