Update from Philip Lowe- July 2020
The impact of the coronavirus on both labour markets and the public sector continues to present challenges to policymakers. In Phillip Lowe's address to the Anika foundation, prevailing conditions complicating the return to economic normality were discussed. Importantly, Lowe noted that despite a decline in hours worked by 10%, this figure was comparatively stronger against other advanced economies such as the US and Canada, where the decline was more drastic at 19% and 28% respectively. He also identified improving conditions in pandemic-exposed sectors, with hospitality, retail and arts & recreation seeing a major boost in employment in the June month as restrictions were eased. Nonetheless, several industries are still in deep waters, with construction and professional services seeing a sharp drop-off in demand as their old pipeline of work dries-up. Overall, strengthening confidence and reducing uncertainty are still instrumental in supporting a stronger labour market, and will come from addressing both the health and policy dimensions of the crisis.
The pandemic has further prompted a rethink of the government balance sheet, with its capacity to smooth out economic shocks particularly important in alleviating the damage dealt by the pandemic on household incomes and certainty. Current issues such as low investment in physical capital, lower training opportunities and youth unemployment can contribute toward long-term structural problems in the economy. Policies such as direct transfers, wage subsidies programs and expenditure on activities that promote job creation offer a potential solution to these issues, but an increase in public sector debt must be considered as a downside to balance sheet expansion. As such, policymakers must factor in this tradeoff when making key decisions.