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Australia’s Bumpy Recovery Set to Shift Into Higher Gear in 2022

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Australia’s economic recovery was temporarily derailed by the delta variant of coronavirus. While the emergence of the omicron variant is concerning, economic optimism for 2022 is still warranted.

Key Points

  • In 2021, Australia suffered extensive job losses following delta variant coronavirus outbreaks in New South Wales and Victoria. 
  • The impact of those losses is not expected to linger, with job postings on Indeed’s Australia site now rebounding sharply as lockdowns ease. 
  • Low population growth will hamper hiring in some occupations, particularly across industries such as retail and hospitality that rely heavily on younger workers. 

In 2021, Australia grappled with the lingering impact of the COVID-19 pandemic. The delta variant ran amok across New South Wales and Victoria over the second half of the year, derailing Australia’s economic recovery and causing nationwide employment to tumble 2.5%. 

Nonetheless, Australians have reason to feel optimistic about the nation’s economic prospects. Job creation is remarkably strong, with job postings and vacancies at record highs. That’s expected to feed into employment growth and push the unemployment rate into the low 4% range, according to the Reserve Bank of Australia

Line graph titled “Australian unemployment rate.” With a vertical axis ranging from 0 to 8, Indeed tracked the share of Australian labour force along a horizontal axis ranging from 2005 to 2023, with a blue line representing the actual employment rate and a pink dotted line representing “Nov-21 RBA forecasts.”

If that happens, Australia will face its tightest labour market since the global financial crisis began in 2008. Businesses worry about finding talent. For jobseekers though, the combination of record job opportunities and closed borders creates a seller’s market. 

The main obstacle to this outlook is the emergence of the omicron variant — a more-contagious version of the COVID-19 virus. If omicron proves resistant to existing vaccines, border closures could be extended and the stage set for further economic restrictions. 

Delta derailed Australia’s impressive jobs recovery

Until mid-year, Australia’s economic recovery had been truly remarkable, exceeding even the most optimistic expectations. By March, more people were employed across the country than before the pandemic began, with employment increasing by 300,000, or 2.3%, over the first half of 2021. 

Unfortunately, that turbocharged recovery was short-lived. Delta outbreaks across New South Wales and then Victoria led to widespread job losses. By October, employment in New South Wales and Victoria was respectively 5.3% and 5.0% below peaks reached earlier in the year.

That left employment in Australia’s two most populous states well below pre-pandemic levels, in stark contrast with the rest of Australia. By avoiding costly lockdowns, states such as Queensland and Western Australia continued to thrive. By October, employment in Australia outside New South Wales and Victoria was 2.6% above its March 2020 level.  

Line graph titled “Australian employment during the pandemic.” With a vertical axis ranging from -9 to 6, Indeed tracked the employment during the pandemic along a horizontal axis ranging from January 2020 to October 2021, with different coloured lines representing “New South Wales,” “Victoria,” and “Rest of Australia.” 

Overall, nationwide employment fell 334,000, or 2.5%, during the delta lockdowns. By any measure, that’s a devastating loss of jobs, creating real hardship for many households and businesses. Nevertheless, the job losses are likely to prove temporary. In fact, the biggest issue next year could be finding enough people to fill available positions. 

Following lockdown, Australian job postings surged

By early December, after adjusting for seasonal trends, job postings on Indeed’s Australia site were tracking 97% ahead of their level on February 1 last year, our pre-pandemic baseline. Quite simply, there have never been so many jobs available in Australia at one time. 

In New South Wales and Victoria, job posting strength partly reflects the need to staff back up after recent lockdowns. In both states, job ads on Indeed have surged since the beginning of October. Growth in postings across the rest of Australia has been on a more gradual upswing — strong, but less volatile due to a lack of economic restrictions.

Why is the Australian economy creating so many jobs? The answer is the unprecedented level of fiscal stimulus washing through the economy. 

Line graph titled “Australian job postings on Indeed by state.” With a vertical axis ranging from -90 to 120, Indeed tracked the percent change in job postings along a horizontal axis ranging from February 2020 to November 2021, with different coloured lines representing “New South Wales,” “Victoria,” and “Rest of Australia.” By early December 2021, after adjusting for seasonal trends, job postings on Indeed’s Australia site were tracking 97% ahead of their level on February 1 last year, our pre-pandemic baseline. 

Job postings can be viewed as a forward-looking measure of labour market conditions. Australian employment is likely to grow strongly in the near term, with employment in New South Wales and Victoria rebounding sharply now that economic restrictions have eased. One thing that could throw a spanner in the works though is the omicron variant of COVID–19. Like the delta variant, it could potentially delay Australia’s economic recovery. 

Closed borders creating concerns over labour supply

We also expect the Australian labour market to tighten considerably next year, partly because of vigorous hiring. Another factor though will be the nation’s stagnant population growth, particularly among those under 35. Closed borders have created a population crisis for Australia and that’s making recruitment harder for Australian businesses. 

In December 2019, Australia’s population was growing at an annual rate of 1.5% — almost 390,000 people added annually. By early 2021, growth had slowed to 0.1% — fewer than 36,000 people added, a crash driven by Australia’s closed border policy. 

The population ages 15-34 is almost 5% lower than it would have been had the pandemic not occurred, a net loss of almost 350,000 people. The 35-64 age group has continued to grow, albeit more slowly than it would have without COVID-19. 

A side-by-side comparison group of line graphs titled “Australian civilian population growth.” With a vertical axis ranging from 88 to 106, Indeed tracked the expectations vs reality of population growth along a horizontal axis ranging from March 2020 to March 2021, with a blue line representing the actual growth and a pink dotted line representing “Expected (based on average monthly growth over 3 years before pandemic).” By early 2021, Australia’s population growth slowed to 0.1% from an annual rate of 1.5% in December 2019— fewer than 36,000 people added, a crash driven by Australia’s closed border policy. 

Industries that rely most on younger workers, such as retail and accommodation & food services, have felt the biggest impact of this population shock. Before the pandemic, two-thirds of workers in accommodation & food services and half in retail trade and arts & recreation were under 35. 

It could take years for Australian population trends to recover, which may force many industries to rethink recruitment. For example, on December 3, retail job postings on Indeed’s Australian site were 140% above their level on February 1, 2020. Job ads in other sectors that also attract younger workers are similarly high. Finding staff will prove difficult unless the retail sector looks more at other age groups to fill entry level positions. 

Table titled “Australian youth employment.” Indeed compared the share of industry employment among the aged 15-34, listing different industries that rely most on younger workers. As of December 9, 2021, Accommodation & food services and retail trade were the two industries with the highest share of employment of ages 15-34 in Australia.

Closing thoughts

Australia’s economic recovery may have been temporarily derailed by the Delta lockdowns, but the outlook for the nation’s job market is still bright, provided we manage the omicron variant. The greatest challenge for Australian businesses next year might be finding sufficient staff to fill vacancies. 

A key reason Australia’s labour market recovery exceeded expectations in the first half of 2021 was a combination of growing demand for goods and services and low population growth. Rising population is typically a key driver of economic activity and job creation. It’s unusual for strong hiring and low population growth to coincide. The fiscal response to the pandemic has allowed the two to decouple, at least temporarily, creating difficult conditions for recruitment. That dynamic will persist in 2022, which means a tight labour market is likely to stay with us in the year ahead. 

Methodology

Job posting figures in this blog post are seasonally adjusted. We seasonally adjust each series based on historical patterns in 2017, 2018 and 2019. Each series, including the national trend, occupational sectors and states is seasonally adjusted separately. The national and regional analysis is based on the percentage change in job postings since February 1, 2020, our pre-pandemic baseline. 

Forecasts for the unemployment rate are from the Reserve Bank of Australia’s November Statement on Monetary Policy. 

The counterfactual for population growth  — that is, population growth in the absence of the pandemic — was derived based on the average monthly growth in population for each age group in the three years before the pandemic.