Real wage growth is now 'years away', as the bushfires and coronavirus fears cut into Australian pay packets

Jack Derwin
  • Australian wages on track to rise just 2.2% this year, lifting 0.5% in the December quarter, according to ABS data out on Wednesday.
  • The weakness comes as the coronavirus and the bushfires shave growth in key sectors, like tourism and retail, and hurt wages in the accommodation and food services sectors.
  • With unemployment unlikely to sink for some time yet, Indeed Asia Pacific economist Callam Pickering said substantial pay rises look "years away".
  • Visit Business Insider Australia’s homepage for more stories.

Wages are barely budging, and a horror start to the year is partly to blame.

Surprising no one, the latest ABS data shows wages are growing by just 2.2% year on year, and a paltry 0.5% this quarter. These were in part dragged down by Australia's bushfire crisis and the ongoing outbreak of the Wuhan virus, which has hampered spending and key sectors like tourism.

"There are potentially some very early signs of the impact of the bushfires and more recently the coronavirus outbreak, with wages in the accommodation and food services sector increasing by just 0.2% quarter on quarter [making them] the weakest of all sectors," Sarah Hunter, chief economist at BIS Oxford Economics said in a note issued to Business Insider Australia.

"It will be some time before we have a complete picture of the drag on the economy from these events, but it is likely that workers in the sector will feel some of the downturn via weaker employment and wages growth."

In fact, there is currently just one sector growing above its decade average in healthcare, chugging along at 3.1% annual growth. When it comes to different states, Victoria continues to prove the best place in the country to get a pay rise, with wages up 2.7% over the last 12 months. New South Wales meanwhile has fallen off the pace adding just 2.1% despite low unemployment and a strong economy.

With wage growth "one of the key challenges for the Australian economy", Indeed Asia-Pacific economist Callam Pickering said more needs to be done to create jobs.

"We are unlikely to see much improvement in wage growth until labour market slack declines. At the very least, we need an unemployment rate of 4.5% – currently 5.1% – and an underutilisation rate of around 12% – currently 13.5% – to get wage growth back to 3%. Perhaps even lower given how resistant wage gains have been to changes in unemployment," he said in a separate note.

"We are years away from achieving those goals. With the Reserve Bank anticipating little improvement in wage growth over the next couple of years – and the Reserve Bank has, in recent years, tended to be overly optimistic in terms of growth and economic activity."

However, optimism can only be stretched so far. The RBA may be content, for now, to wait, being cautious on the house price recovery, but it is expected to step in and cut rates again.

"We consider it unlikely that wage growth will improve much during 2020 and so we also expect household spending and inflation to remain disappointing. We believe it is likely that the Reserve Bank will need to cut rates again by mid-year, with a second cut not out of the question," Pickering said.

Count your pennies in the meantime, folks.