Economists predict ‘plenty of optimism’ for the year ahead
Growing consumer and business confidence show the nation is exiting 2020 with plenty of optimism, say economic experts.
Growing consumer and business confidence, despite the emergence of new coronavirus cases, meant the nation is exiting 2020 with plenty of optimism, economic experts have concluded.
In their latest forecasts for the new year, CommSec’s chief economist Craig James and Westpac’s chief economist Bill Evans tipped the Australian economy to grow by 4-4.9 per cent in 2021.
“The success in suppressing the virus has enabled our states and territories to ‘re-open’ their economies,” Mr James said.
“Governments, the Reserve Bank, commercial banks and regulators have provided all the necessary support and stimulus to ensure as many businesses as possible to stay in business and workers hold onto jobs.”
With borrowing costs low for businesses, households and governments, there is an additional boost to confidence with the prospect of vaccines in the near future.
IN BUSINESS: PICTURES FROM 2020
The cash rate currently stands at a record low 0.1 per cent.
CommSec’s forecast is for the jobless rate, currently at 6.8 per cent, to ease to 5.75 per cent by the end of 2021 before falling further to 5.0 per cent by the end of 2022.
While stimulus measures will help in the first quarter, hard decisions lie ahead about how and when to phase out fiscal measures such as JobKeeper and JobSeeker, Mr James said.
“If you remove the support too quickly, you risk a loss of economic momentum.
“But leave the support in place too long and businesses and consumers lose the desire to take charge of their own destinies.”
He expected the economy to rebound by 4.9 per cent after contracting 2.8 per cent in 2020.
A number of risks remain, including more virus cases, setbacks with vaccines, policy mistakes in relation to support measures and delayed reopening of foreign borders.
In his latest forecasts, Mr Evans lifted economic growth forecasts to 4 per cent for the new year, but predicted a slower 2022 at 3 per cent.
There is an expectation the recent lift in consumer sentiment, to a 10-year high, will be sustained along with the increased momentum in the housing market.
Government efforts to target unemployment, the boost from COVID-19 vaccines and reopened borders also underpinned Westpac’s optimism.
“Under these forecasts we expect that the level of consumer spending and the level of GDP will return to their end-2019 levels by the June quarter 2021.”
He predicted a jobless rate of 6.0 per cent by this time next year, and at just over 5 per cent by end 2022.
Increased consumer spending is likely to be driven by household income growth due to improving job prospects, tax cuts and confidence.
Westpac is forecasting the Reserve Bank will keep the cash rate steady next year, but move to extend its $100bn quantitative easing program in early May.
STATES OUTLOOK*
NSW: COVID-19 challenge remains, notably due to the recent border closures amid new outbreaks. Population growth in NSW has been hit along with foreign student and international tourist inflows. Output contracted by 0.7 per cent in FY20, but is expected to recover by 2.5 per cent in 2021-22.
VIC: The virus has exacted a heavier toll on the Victorian economy with state final demand decimated, falling just shy of 10 per cent over the year to September. A clear rebound is now underway following the relaxation of restrictions since October but challenges remain due to the high exposure to migration and foreign education inflows. GSP is expected to contract 4 per cent over the 2020-21 before a 7.75 per cent resurgence in 2021-22.
QLD: Domestic demand is rebounding strongly, but export headwinds are a concern. The pandemic has been crippling for its $28bn tourism industry. Further, the predicted wet summer may dampen much-needed domestic travel. Trade tensions with China have been detrimental, with restrictions on coal imports compounding earlier tariffs on beef, barley and cotton. Robust household consumption is a positive, as is new business investment, the strongest across the country.
WA: Almost a silo, the COVID recession has been exceptionally brief and mild. Its outperformance reflects limited local virus outbreaks and an industry mix that is less exposed to tourism and foreign students and leveraged to the strong parts of the mining sector. The strong and rapid rebound is now also getting support from two key areas: surging iron ore prices and a pick-up in housing.
SA: The largest stimulus program in the state’s history has underscored the local government’s commitment to supporting economic recovery. But trade tensions are a risk to growth with wine sales, already impacted by the hospitality downturn, coming under further pressure from anti-dumping duties. Recent tariffs on meat and seafood will also be damaging. Reduced net migration from student inflows will only exacerbate the ongoing trend of negative population growth. Interstate border closures have supported population retention, but outflows may resume as these restrictions are relaxed.
TAS: Activity across the nation is rebounding rapidly and will support Tasmania’s recovery. Policy support through increased spending by both state and federal governments will aid recovery, especially on the jobs front. Tensions with China are a potential export headwind.
*Westpac Coast to Coast Update, December 20
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