Australia likely to dodge recession, job cuts

It seems likely that Australia will manage to dodge the level of recession feared for the United States, after firms across the nation continue to announce large-scale layoffs and pay cuts.

Despite Goldman Sachs and BlackRock announcing staff cuts in Australia earlier this year, market commentary continues to remain optimistic, off the back of months of a tight labour market and a steady unemployment rate, that the local economy will remain strong.

“Australians should be insulated from the large-scale layoffs we are now seeing in the tech sector in the US. We are still seeing plentiful jobs created in our biggest industries such as education and healthcare and there are not enough candidates to fill positions,” Kris Grant, CEO at ASPL Group, said.

“While the rest of the world falls into recession, or close to it, the Australia is likely to escape recession this year, and mass layoffs, with the economy also helped on by the mining sector. Miners can’t get enough workers into their mines to get iron ore, coal, copper, oil, lithium, gas and other key commodities out of the ground.

“China’s reopening and global decarbonisation will only add to demand for Australia’s commodities and help drive greater jobs growth in the mining sector. The travel sector too is rebounding, with many more tourists visiting Australia this year, which will exacerbate a skill shortage in that sector.

“With the jobless rate hovering at around 3.5%, the lowest for several decades, employers will have to pay higher wages to attract and retain staff this year. We are also likely to see even more Australians hold down two or more jobs this year after a record number of Australians took multiple jobs in 2022.”

HSBC’s Chief Economist, Australia, NZ & Global Commodities, Paul Bloxham, also said that employment figures experienced a downside change in December after a months-long run of upside “surprises”.

“If we take a look at the run of numbers over the past few months, and at other timely and forward-looking indicators, it does seem that the jobs market is no longer tightening. To say it is loosening maybe a stretch,” he said.

“Forward looking indicators of the labour market published in recent weeks have lost momentum too. Job vacancies fell by 4.9% in Q3 2022, after falling in Q2, although they are still very high. Job advertisements have fallen recently too.

“Solely focusing on the high inflation numbers would likely see [the RBA] hike further yet. However, the sharply weakening housing market, clear global disinflationary trends, today’s signs that the jobs market may be turning and the fact that much of the effect of the RBA’s 300bp of hikes so far is yet to fully feed through to the economy could see the RBA choose to pause (our central case, although it’s a close call).”