Jobs market to take longer to recover from recession: RBA

The jobs market will take longer to recover from the coronavirus recession than expected, the Reserve Bank has warned while revealing new forecasts showing a slow grind for the economy out of the pandemic.

RBA assistant governor Luci Ellis, in a speech soon after the bank released its August monetary policy statement, said even though the economy had done a bit better than initially expected, the recession had left deep scars on the country.

RBA assistant governor Luci Ellis says it will take longer than hoped for the nation's jobs market to recover from the coronavirus recession.Credit: Alex Ellinghausen

Those scars are likely to extend even to families, with Dr Ellis saying the tough jobs market will lead to fewer people marrying or moving in with their partner.

The August monetary policy statement released on Friday morning shows the bank has revised up the unemployment rate to a peak of 10 per cent in December 2020. In its May statement it expected unemployment to reach 9 per cent by the end of the year.

The bank expects the economy to contract by 6 per cent this year, in line with its May forecast, however the recovery will be slightly slower than previously forecast.

Wages growth has been downgraded, expected now to grow a record low 1.25 per cent this year and next.

Household spending, though still deeply negative, is not expected to be as bad as previously thought. Instead of collapsing by 9 per cent this year, the bank now believes the decline will be 7 per cent.

However, business investment expectations have deteriorated. Instead of falling by 13 per cent this year, the bank now believes it will contract by 17 per cent.

Dr Ellis, in a webcast to the Australian Business Economists organisation, said the stage four lockdowns in Victoria affected the bank's forecasts, which now show the economy not returning to its pre-coronavirus level until late next year or early 2022.

"The situation in Victoria will reduce growth in the September quarter and push out the recovery beyond that," she said.

"That said, activity is expected to continue to recover in much of the country over the rest of this year and next.

"The recovery is expected to be slow and uneven, and GDP will probably take several years to return to the trend path expected prior to the virus outbreak."

Dr Ellis said the Victorian shutdowns would weigh on the jobs market, with employment and total hours worked likely to fall over the next few months.

Recovery outside of Victoria would continue, but she noted there were signs even before the latest shutdowns of softness in the national jobs market.

"We now think that, even though the initial contraction was smaller, the subsequent recovery is likely to be more protracted and progress on reducing unemployment will be slower," she said.

The bank now assumes the nation's border will remain closed to most international travellers until the middle of next year.

The absence of tourists and migrants, coupled with the general recession, affects the overall jobs market.

Dr Ellis said population growth had slowed noticeably. The poor jobs market would also weigh on the decisions of couples who might have considered moving in with each other.

"Weak labour market conditions will also discourage some people, especially young people, from forming new households," she said.

Dr Ellis said the Morrison government's JobKeeper program, its coronavirus supplement to people on welfare and its decision to allow people to withdraw up to $20,000 from their superannuation accounts had delivered important income support to Australians.

She said while many people had lost work over recent months, household income had not fallen.

But incomes would decline later this year as JobKeeper rates started to fall and mutual obligation rules were reintroduced for those on JobSeeker.

While households are likely to keep spending, the RBA is not as hopeful about the business sector.

Dr Ellis said the business investment outlook was weak with many firms putting on hold projects because of the "environment of weak demand and heightened uncertainty".