Wages to fall in real terms despite sharp recovery from recession: survey

Workers will endure a two-year fall in the real value of their wages despite a rapid economic recovery under way following the coronavirus pandemic.

This is the assessment of 22 of the nation’s top economists as part of The Sydney Morning Herald/The Age’s Scope Survey on a range of critical indicators over 2021 and 2022.

Inflation is tipped to outpace wage rises for the next two years.Credit:Alamy

Even before the pandemic recession, wage growth had been stagnant and barely keeping up with inflation. But Scope members believe it will get worse.

They expect wage growth, at a record low 1.4 per cent, will drop to 1.2 per cent this year, and lift to 1.6 per cent in 2022.

But inflation is expected to average 2.7 to the June quarter this year and then 1.7 per cent over the next 12 months.

Even under the most optimistic forecast, of 2.1 per cent wages growth from Industry Super Australia chief economist Stephen Anthony, wage rises would still fail to outpace the panel’s inflation expectations.

While this means household budgets could face extra pressure over the next two years, the overall economic outlook is positive following a challenging year that left the nation facing its first recession since 1990-91. The economy is expected to grow by 6.5 per cent in 2021 and 2.9 per cent in 2022.

Nine panellists expect the economy to return to pre-pandemic levels by mid-2021, while six expect this will be the case by the September quarter. Four respondents said it would take until 2022 for the economy to have recovered fully. The University of Western Australia’s Jakob Madsen provided the bleakest outlook with a return to this level not expected until the second quarter of 2023.

The panel also forecasts the jobless rate to continue improving, dropping to 6.4 per cent in 2021 and 5.9 per cent in 2022. The official unemployment rate was 6.4 per cent in January, down from a 7.5 per cent peak in July.

Median property prices in the Sydney and Melbourne markets are widely expected to continue their unexpected surge. Sydney dwelling values are forecast to grow an average 5.9 per cent in 2021 and 4.5 per cent in 2022, while Melbourne prices are tipped to rise 4.5 per cent in 2021 and 5 per cent in 2022.

The most bullish housing market predictions came from UCL’s Steve Keen, who expects 10 per cent growth annually for the next two years in Sydney and in Melbourne, while Melbourne Institute Professor Guay Lim is forecasting rises of above 8 per cent in 2021 for both cities and in excess of 7 per cent for 2022.

Professor Madsen expects home prices to fall in both cities, with drops of 5 per cent in 2021 and 4 per cent in 2022.

Market Economics’ Stephen Koukoulas expects a modest rise of 1 per cent in Sydney this year, followed by declines of 2 per cent in 2022. In Melbourne, he predicted a 4 per cent increase in 2021 followed by a 1 per cent fall next year.

The survey found household consumption is likely to surge in 2021 with an average rise of 9.3 per cent, followed by 3.2 per cent in 2022. Business investment will lag in 2021 with an average fall expected of 3.6 per cent but this is forecast to be followed by a 3.6 per cent recovery in 2022.

Almost all panellists expect business investment to decline except for AMP Capital chief economist Shane Oliver who forecasts a modest rise of 1.7 per cent; Capital Economics’ Ben Udy, 5.1 per cent; and Bankwest Curtin Economics Centre’s Rebecca Cassells, 7.2 per cent.

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