Moody’s issues upbeat verdict on Australia’s post-COVID economy

Moody’s has issued an upbeat verdict on Australia’s post-COVID economy, saying the health crisis will not leave a permanent mark on the nation’s potential growth.

Moody’s says Australia will not suffer long-lasting ill effects from the COVID-19 recession. Picture: Raman Talaie/Bloomberg

Global ratings agency Moody’s has issued an upbeat verdict on Australia’s post-COVID economy, saying the health crisis “was unlikely” to leave a permanent mark on the nation’s potential growth or fiscal strength.

A report on Wednesday from the New York-based firm paved the way for Australia to remain one of the few AAA-rated nations in the world on the other side of the pandemic.

Moody’s said that, after the nation’s economy contracted by 4 per cent this year, it would “return to robust growth” from 2021, estimating GDP to expand by about 3.5 per cent next year and then to remain in the 2-3 per cent rage “for the foreseeable ­future”.

Despite suffering the most severe economic hit on record in the June quarter, Australia was “unlikely to face a lasting drop in potential growth or weakening in fiscal strength over the longer term,” the report said.

The welcome vote of confidence from one of the three major international ratings agencies comes as the nation charts a surprisingly brisk trajectory out of the COVID-19 recession. Victoria’s success in suppressing the second wave of virus cases has paved the way for the removal of internal borders as community transmission of the disease dwindles to zero.

Economists have significantly upgraded their forecasts for September quarter GDP ahead of national accounts figures next Wednesday. Booming consumer confidence has underlined hopes for a consumption-led recovery following the June quarter’s collapse.

But new construction figures showed not every sector would enjoy a sharp recovery in the third quarter.

The value of construction work done over the three months to September fell sharply, by 2.6 per cent to $51.2bn, the seasonally adjusted figures from the Australian Bureau of Statistics showed, as locked-down Victoria led a national slump in building and engineering work.

But behind the grim figures depicting a construction sector in retreat, “there were some green shoots in the data”, Citi chief economist Josh Williamson said.

“Importantly, with Melbourne out of lockdown, Victoria’s drag on national con­struction activity will end in [the December quarter], implying positive growth in the state that is responsible for one-third of ­national construction activity,” Mr Williamson said.

The ABS data also showed a 5.1 per cent quarterly surge in renovation activity as stay-at-home Australians spent big on updating their properties.

Economists also highlighted a large increase in government-funded construction work. Public sector construction lifted by 4.6 per cent over the September quarter, while the value of public engineering work climbed by 2.7 per cent versus the previous three months.

“Public sector engineering work is trending higher and will be supported in the years ahead by the large pipeline of public sector infrastructure work,” CBA senior economist Kristina Clifton said.

Moody’s praised the Morrison government’s “substantial policy response” during the pandemic, but said future prosperity depended on further policy ­reform.