Australia's delayed recession shows up in jobs data

There may be trouble ahead.

By Michael Heath, Bloomberg

Australia’s success in evading the global recession is coming back to haunt it.

A delayed fallout is manifesting itself in a steady climb in underemployment Down Under, in direct contrast to nations that were consumed by the 2008 financial crisis. Over the last few years, the average rate of workers wanting more hours has fallen throughout Europe, the U.S. and the U.K., according to OECD data compiled by AlphaBeta. But Australia’s underemployment has sharpened, as commodity prices peaked and mining investment started winding down.

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“You can’t escape the fact that recessions do have some positives: the crudest way to put it is it cleans the crap out of the system,” said Justin Fabo, a senior economist at AlphaBeta in Sydney. “It resets your cost base, it improves efficiency, productivity and on an even more fundamental basis, it gives people perspective.”

Australia deployed fiscal and policy stimulus to avoid economic contraction after the collapse of Lehman Brothers Inc.; and China’s massive stimulus program then sent commodity prices soaring, underpinning the economy’s roaring back Down Under. The upshot: all that good work only delayed the effects of the recession rather than completely avoiding them.

Problems in Australia’s labor market have become stark over the past year as full-time jobs fell, part-time roles picked up some of the slack and many people quit hunting for work. As a result, unemployment remains below 6 percent despite a labor market that in reality has a lot more slack than that figure suggests.

“Everyone thinks that we’ve done really well since the global financial crisis, which we kind of have, but a lot of the fallout from the GFC has just been kind of delayed or slowed in Australia, whereas in other places it hit pretty hard, they hit rock-bottom, then they’ve recovered from that,” Fabo said.

The issue then is whether Australia might’ve done better taking its medicine earlier and getting it out the way.

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Australia’s last recession was in 1991 — as a result, the youngest adults in the workforce when it happened would be approaching their mid-forties this year. The lack of an economic reset has left the country with exceptionally high household debt — almost 189 percent of income — and stratospheric property prices on its east coast.

Politically, the nation is almost on auto-pilot as governments of both persuasions seek to avoid alienating a population already resentful because of stagnant income growth after many years of expansion.

“My hunch is, in this country, there’s a little bit of complacency that’s crept into not just politics but everyone’s lives because we’ve done so well,” said Fabo. “When there is that shock eventually, that complacency is going to mean the shock feels really, really bad.”