Economists see a moderate recovery in 2020

Australians enter the new decade less fearful of a recession.

ANZ economist Felicity Emmett said ‘Australia’s economic growth is set to improve gradually through 2020 and 2021’.

Australians enter the new decade less fearful of a recession with economists hopeful the economy will enjoy a “moderate” recovery in 2020 as easing US-China trade tensions and the thumping Tory victory in Britain bring a modicum of calm after a tumultuous year in geopolitics.

An analysis of Google trends data shows interest in the search term “recession” peaked in Aug­ust to its highest since the global fin­ancial crisis, but it has since sharply retracted to more normal levels, suggesting a worst-case economic scenario has dis­appeared off the radar of most households and experts.

ANZ economist Felicity Emmett said “Australia’s economic growth is set to improve gradually through 2020 and 2021’’.

Similarly, a widely followed measure of global economic policy uncertainty streaked higher through 2019 to reach in August its most extreme reading going back as far as 1997. But this measure, too, has retracted, driven in large part by easing US-China trade tensions, although it remains at high levels. US President Donald Trump said on Tuesday he and Chinese President Xi Jinping would hold a signing ceremony in early January to formalise the “phase 1” trade deal agreement reached this month.

British Prime Minister Boris Johnson’s resounding poll win has virtually erased the chance of a disorderly exit from the EU without a deal.

Set against a more benign global backdrop, the International Monetary Fund forecasts Aus­tralian economic growth, in real GDP terms, to accelerate from 1.7 per cent this year to 2.3 per cent in 2020. Citi and ANZ economists predict the economy will expand by 2.2 per cent next year.

Citi economist Josh Williamson said although growth was likely to remain moderate next year, “the good news is we don’t expect a repeat of the even weaker 2019 growth experience”.

The IMF and bank forecasts look solid, given our global peers are expected to grow by only 1.7 per cent in 2020, as Josh Frydenberg has been quick to point out.

Predictions for a better 2020 come off a low base after the economy disappointed on a number of fronts this year. Consumers, in particular, have sharply reduced spending as they contend with rec­ord high mortgage debt and as years of low wages growth breed a more cautious attitude to finances. Consumption growth collapsed from 3.1 per cent over the year to June 2018, to just 1.2 per cent in the 12 months to September. “The outlook for consumer spending remains particularly uncertain,” Ms Emmett said.

“Households seem to have one eye on the positives of tax cuts, interest rate cuts and rising house prices, and another on the longer-term outlook of high debt repayments in a low-wage world. How that plays out will influence the overall growth trajectory.”

Businesses have chosen to pull back on investment in response to subdued domestic demand and global uncertainty. Housing construction has fallen precipitously.

This weakness in private demand was offset by booming mining exports and a high level of government expenditure.

Ms Emmett is hopeful the housing construction cycle will turn in mid-2020, and lower taxes, falling borrowing costs and higher house prices will lead to a moderate recovery in consumption.