Manufacturing and construction sectors to drive Australia's post-pandemic recovery

New research by the Monash Business School shows economic recovery is likely to be driven by investment in the manufacturing and construction sectors.

  • Australia’s unemployment rate is expected to grow by up to 13 percentage points in the second half of this year, compared to 2019.
  • Large-scale investment in the manufacturing and construction sectors could drive post-pandemic economic recovery.
  • Monash Business School research shows the JobKeeper package has been integral to keeping Australians in jobs, reducing potentially damaging unemployment figures.

The number of jobless Australians is expected to grow between 7 to 13 percentage points in the second half of this year, compared to 2019, as the ongoing financial impact of the COVID-19 pandemic continues to bite. But, large-scale investment in the construction sector could provide a way out.

New research by the Monash Business School, which investigated 19 sectors of the Australian economy, finds that any economic recovery is likely to be driven by the manufacturing and construction sectors, followed by wholesale and retail trade.

Professor Heather Anderson, Associate Professor Giovanni Caggiano, Professor Farshid Vahid and Dr Benjamin Wong from Monash Business School’s Department of Econometrics and Business Statistics and Department of Economics conducted this research to explore how different sectors of the Australian economy would respond after COVID-19.

Associate Professor Caggiano said the key to rebounding from this post-pandemic slump would be an investment in construction and manufacturing jobs.

“The most important thing this research demonstrates is not the size of these sectors – currently accounting for more than 15 per cent of total employment – but the amount of revenue they generate in the long run,” Associate Professor Caggiano said.

“Policies that can stimulate employment in these sectors will be extremely effective in increasing total employment.”

Their research considered three scenarios – the ‘best case’, the ‘worst case’ and the ‘middle ground’ – as well as examining employment growth had there not been a pandemic.

Under the ‘worst case’ scenario, researchers predicted that 1.8 million jobs would be lost by the end of June, with significant impacts felt across 11 of the 19 sectors. Accommodation and food services, and arts and recreational services could experience a possible 50 per cent drop in employment in the second quarter of this year.

In the ‘middle ground’ scenario, about 1.5 million jobs would be lost by the end of the second quarter in 2020, with employed numbers remaining constant from that time.

However, in reassuring news for Australian businesses, Associate Professor Caggiano believes Australia is tracking towards the ‘best case’ scenario largely in part to the JobKeeper program and the comparatively low COVID-19 case numbers, which has allowed the country to re-open faster than others.

Under this scenario, 985,000 jobs will be lost in the second quarter of 2020, relative to the same quarter in 2019. The hospitality and arts industries will also be hardest hit.

While year-on-year growth in total employment will remain negative until the final quarter of 2021, Associate Professor Caggiano said this figure will reach 2 per cent growth in the first quarter of 2022.

“Thanks to the JobKeeper program, the optimistic scenario is the one most likely to hold true in Australia,” he said.

“Looking at the difference between the best and worst case scenarios illustrates how important interventions like the JobKeeper program really are and how they should be continued for as long as possible.”

According to the Australian Bureau of Statistics, 1.6 million Australians lost their jobs within two weeks of the COVID-19 global pandemic being announced.

Read more online in Monash Business School’s Impact.