On July 16th the government announced that it was resuming payments to casual workers forced to be absent from their jobs because of the coronavirus, amid the start of another wave of covid‑19 cases. Workplace disruption will add further to supply-side inflationary pressures.

The resurgence of the coronavirus is another element in a darkening economic picture in Australia. The treasurer, Jim Chalmers, will present an economic update to parliament in late July that is likely to show an acceleration in consumer price inflation, slower economic growth and tighter control over government spending relative to the update presented in March by his Liberal predecessor, Josh Frydenberg. Mr Chalmers has already ruled out an extension to the previous government’s cuts in fuel subsidies, suggesting that maintaining them would be too expensive.

Pressure on the healthcare system related to the latest wave of infection is likely to reach new highs in August. Epidemiologists expect that the number of coronavirus cases in the country, which has been rising steeply since June, is likely to continue to climb for several more weeks. Of concern is the fact that although total daily cases are currently only around two-thirds of their peak level in early 2022, the number of people hospitalised with the virus has matched January’s record. Seasonal flu cases are also running particularly high.

EIU believes that the Labor Party government will prioritise spending to combat the pandemic in the same way as its predecessor, which will encourage a search for savings elsewhere. The federal government has reinstated payments of up to A$750 (US$540) for each seven-day period that casual workers spend in quarantine to make up for lost earnings. It also advised Australians to seek out vaccination boosters and to wear masks inside to limit the severity and the spread of the virus and its consequent economic impact. The cost of running the scheme for three months (until the end of September) is estimated at A$800m (US$574m).

What next?

That Mr Chalmers has already begun to lay the groundwork for a gloomy outlook suggests that there will be little for Australians to cheer in his late July economic update, especially with regard to wages and inflation. A resurgence in coronavirus cases is likely to intensify problems in a tight labour market, where finding workers is becoming a major problem for businesses and is contributing to the ongoing surge in inflation.

The analysis featured in this article can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries.