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Looming Recession A Daunting Prospect For Young Australians
For many young Australians, the word "recession" has always been confined to textbooks or tales of the past. However, the looming threat of a recession is causing considerable concern among this generation.
Australia may not have experienced two consecutive quarters of negative growth since 1991 (excluding the first half of 2020 due to the pandemic). But that's not stopping experts hinting at the possibility of a recession soon.
According to an article on SMH, Commonwealth Bank and HSBC economists say the odds of a recession are 50/50, while AustralianSuper’s chief investment officer said a recession is “most likely”.
So, what are the potential repercussions of a recession for younger people?
Recessions affect people of all ages, but younger people often bear the brunt of the consequences.
Their jobs are typically the first to be let go, and their lack of substantial savings exacerbates financial challenges. Moreover, the long-term effects of a recession can hinder their ability to enter the labor market.
Takeaway: Historical data from previous downturns reveals that the jobless rate for young Australians tends to rise more significantly during these periods than for any other age group.
Past recessions and youth unemployment
Following the 1990-91 recession, Australia's youth unemployment rate surged by 1.8 percentage points to 17.5%, while overall unemployment increased by 1.2 percentage points to 10.7%.
Similarly, in the aftermath of the 2020 recession, retail and hospitality industries experienced substantial job losses.
Despite young people accounting for only 14% of the population, they bore the burden of 55% of these losses.
Takeaway: The impact of a recession on youth unemployment tends to persist even after the economy starts to recover.
Long-term consequences and employment prospects
Australian Council for Educational Research reveals that economic downturns result in a rapid rise in unemployment, but the subsequent decline is much slower during periods of economic recovery.
Specifically for young people, those who graduate during a weak labor market often face persistently lower employment rates and reduced wages compared to those who graduated during better times.
Takeaway: These effects can last up to a decade, highlighting the long-lasting implications of recessions on early-career job opportunities.
Financial struggles and recessions
Data from Westpac indicates that as individuals grow older, average and median account balances increase. In 2020, 18-24 year-olds had an average savings balance of $5147, whereas the average for all age groups stood at $22,020.
While some young people can rely on the financial support of secure families, many do not have this luxury, intensifying the challenges they face during a recession.
Takeaway: Recessions pose an especially daunting prospect for young people as they often have fewer savings to rely on during tough times.
Echoes of the past and current risks
While the 2020 recession was primarily caused by the pandemic, the conditions that may lead to a recession this year are reminiscent of those that preceded the 1990-91 recession.
Excessive domestic demand, speculation in commercial property markets, and attempts to reduce inflation were key factors in the previous recession.
Presently, Australia's economic and political environment is focused on curbing inflation, with the Reserve Bank gradually increasing interest rates. However, many pundits say these measures may have unintended consequences.
The Bottom Line:
The pandemic provided a harsh reality check for young people, offering them a glimpse into the challenges of a future recession.
With parallels being drawn between the current economic climate and the 1990-91 recession, the potential fallout could disproportionately impact those at the early stages of their careers.
It is crucial for young Australians to prepare themselves financially and explore avenues of support available to navigate the uncertain times ahead.
