IS DISASTER LOOMING FOR AUSTRALIA'S ECONOMY? By Valerie Hernandez September 29, 2021 There was a muted sigh of relief in Australia on September 1 when the Australian Bureau of Statistics (ABSconfirmed that the nations economy had risen by 0.7 percent quarter-on-quarter during the second quarterof the year. This positive growth meant that the country had most likely avoided a technical recession forthe time being, as it was acknowledged that this growth preceded what was quaranteed to be a majorcontraction during the upcoming September quarter on the back of a merciless wave of COVID-19's Deltavariant having spread throughout its two largest states by population. Nonetheless, Australia's economichopes have once again been shaken, with any expectations of a quick recovery being definitively quashedOn the contrary, Australia's economy was roaring back into contention just before the Delta strain reachedits shores and sent large swathes of the country into lockdown, A robust economic recovery had transpiredone which saw gross domestic product (GDP) expand on an annual basis by a record 9.6 percent in the 12months through June 2021 (eclipsing the previous record of 9-percent annual growth recorded in March1967), lts 2.5-percent economic contraction for the whole of 2020 also stood in stark contrast to thatexperienced by other nations, including the United Kingdom, which shrunk by 9.8 percent; Spain by 10.8oercent; and France by 8 percent. And its 3.1-percent and 1.8-percent growth figures recorded for the)ecember and March quarters, respectively, provided Australians with much optimism over the countrysprospects.

But as Josh Frydenberg, federal treasurer, recently acknowledged that remarkable resilience will be of "littlecomfort" to Australians continuing to face severe restrictions. Indeed, the lockdowns that have beenimplemented in response to the Delta outbreak from late June onwards across the states of New SouthWales (NSW) and Victoria-which include the cities of Sydney and Melbourne-as well as the AustralianCapital Territory (ACT) have seriously tempered expectations of a swift return to economic normalisation.'The June quarter is a depressing reminder of how close Australia came to achieving the strong and vibranteconomy that has eluded policymakers since the global financial crisis, Callam Pickering, Asia-Pacific chiefeconomist at lndeed.com, recently observed, "That the economy still expanded, despite both May and Junepartly compromised by lockdown, highlights just how strong the economy was looking earlier this year.With the lockdowns still in place, then, Frydenberg said he expects the September quarter to register acontraction of "at least 2 percent". And recent unemployment figures only seem to confirm that acontraction of this magnitude will materialise, with hundreds of thousands of people losing work in recentmonths, many of whom have dropped out of the job market altogether. Although the headlineunemployment rate fell to 4.5 percent in August, economists have been keen to stress that this figure offersa misleading illustration of Australia's labour market, particularly as it accounts for neither the 168.000people who fell out of the labour force in August nor those who are working on zero-hour contracts.Indeed, Australia's labour-force participation rate dropped from a record high in March of 66.3 percent tojust 65.2 percent in August, which is actually lowerthan the pre-COVID era. And those working zero hoursfor economic or other reasons surged by 60 percent in August to 622 000 people, which is the highest sinceApril 2020. According to economist Saul Eslake, Australia's effective unemployment rate, which accountsfor those workers, is now 10.3 percent. "lt's the highest since 10.6 percent in September last year, but it's aot lower than the peak of 17.9 percent in April last vear" he told local news publication The New Dailyadding that NSW and Victoria are in an effective recession that will deepen into September.

And Australia's strong economic performance all the way up until the lockdowns also bodes well for a sharprecovery once restrictions are fully lifted. "Economic activity has clearly been severely disrupted, and it islikely that the national economy will contract by around 3 percent in the September quarter as a result"noted Sarah Hunter, chief economist at BlS Oxford Economics. But Hunter also stated that she believesAustralia's avoidance of recession in the June quarter "highlights that when restrictions are eased, fiscaand monetary policy are supportive, and households and businesses are confident in the outlook, and in theCOVID situation, the economy will recover" That recovery will also be dependent on the nature of policy support, the 0ECD warned, with supportivemonetary-policy facilities preferably being maintained and fiscal policy remaining especially flexible toadapt to the state of the economy at any particular time. Australia should also avoid any premature orabrupt withdrawals of policy supports whilst the near-term outlook is still uncertain. The government isoitching its second pandemic budget as solely focused on Australia's recovery from the COVID-19pandemic and recession. That will see a decade of deficits and debt that's set to peak at almost $1 trillion in2025 and massive budget deficits can lead to financial crowding out and may negatively affect theeconomy. "Fiscal policy is now being conducted in an environment of hicher public debt and will be called toplay a more active role given the limited space for conventional monetary policy at the lower bound" theOrganisation added.

a)According to the article, what is Australia's effective unemployment rate? What is the labour force participation rate in August, 2021?

b)According to the article, what is the recorded economic growth rate for Australia for the time period June2020 to June 2021? What is the economic growth rate for Australia in the second quarter of year 2021?

c)Although the headline unemployment rate fell to 4.5 percent in Auqust, economists have been keen to stress that this figure offers a misleading illustration of Australia's labour market". Provide two reasons to iilustrate that the estimated unemployment rate could understate the true unemployment.