Economy set for a ‘beautiful recovery’, says Deloitte’s Chris Richardson

Australia’s economy over coming years will bounce back hard and fast from the COVID-19 shock, provided the health crisis remains under control.

Deloitte partner Chris Richardson: ‘We will grow really fast when we come out of this.’ Picture: Richard Jupe

Australia’s economy over coming years will bounce back hard and fast from the COVID-19 shock, provided the health crisis remains under control, but will still be left smaller because of a much lower population.

Deloitte partner Chris Richardson said despite a devastating recession, “if things go right, and virus numbers go right, you genuinely start to get a beautiful recovery”.

Mr Richardson, who began his career at Treasury in the early 1980s, said previous recessions or downturns in Australia had been followed by times of faster growth as workers and ­industries left idle resumed ­activity.

“The point that people have not understood is we will grow really fast when we come out of this,” he said. And “the bigger the downturn, the bigger the ­recovery”.

The latest Business Outlook from Deloitte Access Economics says the economy will grow by 3.4 per cent on average over the next five financial years.

Deloitte forecasts that after contracting by 2.5 per cent in this financial year, real GDP growth will jump by 4.4 per cent in 2021-22, and 4.1 per cent in 2022-23, before tailing off to 2.8 per cent by the middle of the ­decade.

Mr Richardson also warned of a “cash crunch” facing households and businesses from this month as major income support measures, such as the JobKeeper wage subsidy and the JobSeeker supplement, were wound back.

Other major supports, such as the special early access to super and one-off payments to eligible firms and households, would not be repeated. “We are in no man’s land at the moment,” he said. “The band-aids are just starting to come off.”

As well, 116,000 small businesses and 270,000 households are yet to restart repayments on loans after being thrown a six-month lifeline from their lenders during the depths of the COVID-19 crisis.

Income support from various measures peaked at about $28bn in May — equivalent to 16 per cent of the $170bn total monthly national income. In October, the level of support would be about $8bn, the report showed, before dwindling further after December as the wage subsidy tapered again and the JobSeeker supplement was removed.

Reserve Bank governor Philip Lowe last week said it was possible people would replace some of that lost income support by running down large pots of savings created through the pandemic, smoothing out what many have called a “fiscal cliff”.

Deloitte’s relatively upbeat forecast falls just short of Scott Morrison’s plan to lift the economic growth rate to more than one percentage point above trend growth over five years “to catch back up to where we were before COVID hit”.

Even a “beautiful recovery”, which assumed a ­vaccine was widely available by late next year and there were no further major outbreaks, would still leave the economy about 3.75 per cent permanently smaller than it would have been had the pandemic not happened, the report said.

Mr Richardson said closed international borders and the hit to population growth would have a “massive” impact on the size of the economy.

“The nat­ion’s total population in two years is set to be about 600,000 smaller than we’d forecast ahead of COVID,” he said. In the recent budget, Treasury predicted an even bigger shortfall of 1 million people by 2022.

Mr Richardson said the nation would face a weaker labour market into the second half of the decade.

“While the unemployment rate may return to having a ‘5’ in front (of it) within four years, underemployment may still be 3-4 percentage points higher than its pre-COVID rate for some time,” he said.

With the RBA expected to cut rates from 0.25 per cent to 0.1 per cent when the board next meets on November 3, Mr Richardson said rates would be “flat to the floor” until mid 2024.