Economists downplay chances of a V-shaped recovery from the coronavirus crisis

Economists, including Saul Eslake, warn that job losses point to a more moderate economic recovery than the market is pricing in.

Surging white-collar job losses will hamper the revival of the economy, with the prospect of a quick, V-shaped recovery now more distant, the nation’s leading economists have warned.

As thousands of professionals sign up for JobSeeker benefits, top-ranked economist Saul Eslake warned of another wave of job losses to come, possibly triggered by the end of the debt repayment holidays in September.

“The path out of the recession won’t be nearly as steep as the path in,” Mr Eslake told The Australian.

“Some businesses aren’t going to survive. And many businesses who do survive won’t need the same amount of labour. Qantas and Myer are very good illustrations of that.”

Qantas last week outlined plans to slash 6000 jobs from its 30,000-strong workforce and keep a further 15,000 workers stood down as it battles through the airline shutdown brought about by the coronavirus crisis. Myer, Deloitte and PwC are among the other large corporates that have cut executive jobs in recent weeks.

“(The job losses) signal that the economic outlook is going to remain fragile for some time. They also argue against the idea that we will have a V-shaped recovery,” Mr Eslake warned.

While anticipating more job losses in the months ahead, Mr Eslake said it was difficult to predict just how big the cuts would be once the JobKeeper program and bank loan repayment holidays are wound up at the end of September.

“Some of those businesses are going to conclude it’s just commercially not worthwhile to continue. Some will conclude that the only way they can pay the higher interest payments and go back to paying rent is by slimming down a lot.

“And in Qantas’s case, they’re thinking about the fact that we’re probably not going to lift international borders until this time next year.”

Shunning the idea of a V-shaped recovery, Mr Eslake is forecasting an 8.5 per cent drop in GDP in the June quarter, a 3.2 per cent lift in the September quarter and a 2 per cent rise in the December quarter.

By the end of 2021 he still ­expects GDP to be sitting a full percentage point below where it was in 2019 and warned it would take until at least 2025 before GDP recovers to where it would have been had the coronavirus crisis never occurred.

While equity markets have staged a strong rebound from their March lows, he noted that steep falls on Wall Street late last week indicated the market was now responding to increasingly obvious evidence that the virus wasn’t under control in the US.

Crestone Wealth Management chief investment officer Scott Haslem, the former chief economist for UBS, said the market was expecting somewhere between a V and a U-shaped recovery.

“The sharemarket is trying to completely write off 2020 as just a bad year and look across the valley to 2021, taking a business as usual perspective. But some sectors aren’t going to be back to normal next year,” he said.

“The job losses that we’ve seen announced reflect that getting an economy going is going to be harder than the market is necessarily expecting, and that there are going to be some sectors — not all, but some sectors — of the economy that are going to be under recessionary-like pressure for well into the middle of 2021.”

Like Mr Eslake, Mr Haslem is also expecting another wave of job losses before the end of the year.

“While those job losses are likely to confirm a more U-shaped then V-shaped recovery, and be a headwind, I don’t expect it to change the direction of Australia’s moderate recovery from here,” he said.

Crestone’s base case is for a U-shaped recovery and Mr Haslem sees potential for a sharemarket correction in the near term, but does not expect equities to retest the March lows any time soon.

The boutique wealth manager is advising clients to stay invested, with the expectation of increased volatility in the coming months.

“We are overweight Australia relative to global equities; we think Australia has dealt better with COVID than other economies, and we’re linked to China and north Asia, which has had a fairly good COVID experience,” Mr Haslem said.

HSBC chief economist Paul Bloxham, meanwhile, warned that the job cuts sweeping the nation reflected companies coming to terms with the fact that the post-COVID economy will be very different to how things were before the virus hit.

“We saw the first wave of job losses associated with the social distancing measures that were applied — and some of those jobs are going to come back. But now we’re starting to see another wave of job losses in other areas where the economy is adjusting to the post-COVID world,” he said.

“The travel industry, obviously, is going to be very different going forward than it has been in the past.”

HSBC also expects retail to be challenged post-COVID, particularly bricks-and-mortar stores as consumers increasingly shop online.

The economy won’t see a V-shaped bounce-back, partly because Australia never went into full lockdown, Mr Bloxham said. A U-shaped recovery was more likely as the country gradually loosened restrictions, he added.