Australian GDP growth still leading advanced economy pack: Fitch

COVID-19 will hit Australia’s GDP growth but not enough to stop it being a leader among the world’s advanced economies, Fitch reports.

Federal treasurer Josh Frydenberg. Picture: Gary Ramage

COVID won’t block Australia’s global growth lead in GDP terms, according to a new report by Fitch Ratings, which predicts Australia’s GDP growth will continue to outperform the world’s largest advanced economies.

While GDP levels are expected to remain subdued for at least the next five years following the impact of the 2020 coronavirus recession, Fitch predicted that Australia’s GDP would grow 1.7 per cent, the highest predicted increase among the 10 countries covered in its GDP impact report.

The ratings agency expected Australia’s annual average GDP growth to stay around 1.4 per cent between 2020 and 2022, before a slight rebound between 2023 and 2025 to 2 per cent.

The predictions follow news Australia has plunged into its first recession in three decades due to the impact of the COVID-19 pandemic, with annual GDP growth slowing from 2.2 per cent to 1.4 per cent, in what was the slowest year-on-year growth since the global financial crisis.

A predicted 0.7 per cent drop in Australia’s working-age population, as a result of a massive drop in migration over the coming years is also expected to hinder Australia’s bounce-back from a COVID recession, Fitch said.

Still, Australia’s GDP is expected to fair better than other advanced economies, with US GDP expected to grow at an average of 1.4 per cent per year over the next five years, while Germany’s average annual GDP is expected to grow 1.1 per cent over that period.

The UK’s GDP figure was expected to grow at an annual average 0.9 per cent of the next five years, while Japan’s GDP is expected to grow at 0.4 per cent.

Australia’s GDP outperformance relative to the other nine advanced economies was partly due to a predicted steadier long-term unemployment in comparison to other countries, helped by JobKeeper.

“In the short term, these schemes have obvious benefits. First, they greatly cushion the hit to household income,” the Fitch report said. “Second, they keep intact the relationships between workers and employers, which could help speed up the recovery as businesses pick up.”

Japan and economies in Europe have also rolled-out extensive job furlough schemes, Fitch said.

The ratings agency said it expected a rise in long-term unemployment in the aftermath of the shock, with many workers in COVID-affected industries to struggle to find re-employment quickly.

“There will be lasting damage to supply-side productive potential from the coronavirus shock as long-term unemployment rises, working hours fall and investment and capital accumulation slow,” Fitch director Maxime Darmet said.

China and India are classified as developing economies by the International Monetary Fund.

Classifications by the IMF of advanced economies and emerging market and developing economies are based on per capita income level and a country’s diversification of exports, as well as the degree of integration into the global financial system.