OECD forecasts bright future for Australia as borders reopen

The OECD has sharply upgraded its growth forecasts for Australia and declared there is ‘hope for a brighter future’.

Treasurer Josh Frydenberg says the OECD report confirms Australia’s economic recovery is well underway. Picture: Gary Ramage

The OECD has sharply upgraded its growth forecasts for Australia and declared there is “hope for a brighter future”, ahead of Wednesday’s national accounts figures, which will confirm the country roared out of the COVID-19 recession over the three months to September.

Scott Morrison said Australia was now “opening safely” in time to meet his Christmas deadline as Queensland dropped restrictions with NSW and Victoria, and Western Australia flagging that it would move next week to drop its travel restrictions with the nation’s two largest states.

“A very important milestone has been reached in this comeback from the COVID-19 recession. Today is the day when the borders are tumbling down,” the Prime Minister said.

Mr Morrison argued the easing of hard borders, restoration of lost jobs and hours, and the graduation of more than two million Australians from JobKeeper payments in October demonstrated that “the comeback is on”, while Josh Frydenberg said the economy was “coming back from the biggest hit in over a century”.

Economists were predicting on Tuesday that the economy grew by between 2.8 per cent and 4 per cent during the September quarter, as a string of new data suggested the recovery had extended­ into the final months of the year.

Australian Bureau of Statistics figures revealed approvals to build new houses hit a 20-year high in October, while payroll figures showed that over the two weeks to mid-November Victoria added jobs at four times the pace of the nation as the state reopened for business.

Consumer confidence has also lifted in every week bar one since the end of August, according to the ANZ-Roy Morgan survey, as it climbed another 2.9 per cent over the week to November 29 to hover well above pre-COVID levels.

 

Buoyed by a steady stream of positive developments for a possibl­e coronavirus vaccine, the Organisation for Economic Co-operation and Development ­declared in its latest global outlook that, “for the first time since the pandemic began, there is now hope for a brighter future”.

The OECD upgraded its forecasts for the Australian economy, predicting that real GDP would now shrink by 3.8 per cent in 2020 versus its September estimate for a more severe 4.1 per cent contraction and against its forecast of an average fall of 5.5 per cent across all advanced economies.

Growth next year is now expec­ted to hit 3.2 per cent versus the 2.5 per cent pace expected two months earlier, the OECD said, and Australia’s economy would expand by 3.1 per cent in 2022.

The OECD report said “the easing of Victoria’s lockdown and strong fiscal support will boost GDP growth in the near term” but also warned that “fiscal and monetary policy support should not be withdrawn before the recovery is well entrenched”.

Opposition Treasury spokesman Jim Chalmers said the OECD outlook “warned the Morrison government that premature cuts to vital support in the economy will hamper Australia’s recover­y from the worst downturn in almost a century”.

“The Prime Minister and Treas­urer shouldn’t be patting each other on the back while Australians­ are still hurting, jobless queues are still getting longer, and with ongoing challenges around underemployment,” Dr Chalmers said.

In a statement accompanying the decision to hold rates steady at a record low of 0.1 per cent, Reserve­ Bank governor Philip Lowe noted that the economic data had been “better than expected”, but also that the recovery was likely to be uneven and require ongoing “significant” policy support.

“In the RBA’s central scenario, it will not be until the end of 2021 that the level of GDP reaches the level attained at the end of 2019,’’ Dr Lowe said. “In the central scenario­, GDP is expected to grow by around 5 per cent next year and 4 per cent over 2022.’’

He also said the central bank expected unemployment to rise above 7 per cent before slowly declining­ to hover at about 2 per cent by the end of 2022.

Speaking in parliament on Tuesday, the Treasurer said there was a “comeback in the Australian economy and it is showing remarkab­le resilience”.

Australian Taxation Office figures released on Sunday showed there were two million fewer ­Australians on JobKeeper in ­October than in September, as the number of businesses applying for the wage subsidy scheme fell by 450,000 — a sign that the transition off emergency income ­support was tracking smoothly.