Scott Morrison’s growth expectations ‘a huge ask’, experts say

Economists have cast doubt on Scott Morrison’s aspirational target of boosting growth well above trend levels in the coming years.

Scott Morrison in question time on Monday. Picture: AAP

Economists have cast doubt on Scott Morrison’s aspirational target of boosting growth well above trend levels in the coming years to regain the economy’s pre-­pandemic trajectory by 2025.

The Prime Minister in a speech on Monday said “We need to lift our economic growth rate by more than one percentage point above trend to beat the expected pre-COVID-19 GDP by 2025”.

Mr Morrison said it would take two years for growth to return to its pre-pandemic levels. “That’s why we have a plan to lift growth, not just for the next few months but the next five years,” he said.

Economists believe trend growth sits at about 2.5 per cent in an era of subdued productivity gains and the “secular stagnation” of the post-GFC world.

To meet the PM’s aspirational target, GDP will need to expand annually by about 3.5 per cent over the coming five years. By calendar year, Australia’s GDP last expanded by more than 3.5 per cent in 2007, the year leading up to the global financial crisis.

Mr Morrison’s predictions are based on Treasury modelling that has not been made public.

NAB chief economist Alan Oster said erasing the GDP impact of the virus by 2025 was not “feasible as a target” in such a short period of time. He said it would be “a huge ask” to get the economy back to where it would have been without the virus.

“To fully replace the gap and get back to where we would have been, assuming the virus didn’t happen, and the economy grew at trend rates instead, is a much bigger task,” Mr Oster said.

While Australia’s real economic growth shrank by 4.1 per cent this year, NAB forecasts growth of 3 per cent in 2021 and 2.8 per cent for 2022.

 

PwC chief economist Jeremy Thorpe said: “Even if you commit to a growth reform agenda, it would take eight years to get back to the trajectory … we would have been without the pandemic. We will get good growth reasonably quickly off a low base, but then t(it) will slow as social constraints kick in to business models.”

Mr Thorpe said it was possible to achieve Mr Morrison’s goal but “it will take a concerted effort across a number of policy areas and require innovative thinking”.

Complicating the task is that half of Australia’s economic growth over the two years leading into the pandemic was driven by high rates of net migration. With international borders closed, the government has said migration this financial year will be 30 per cent lower, while net migration in 2020-21 will be 85 per cent down on 2018-19 levels.

ANZ head of Australian economics David Plank said he saw “little chance of lifting growth to 3.5 per cent on a sustained basis without major ­productivity-enhancing reforms, unless the government decided it wanted to ramp immigration inflows up to levels well above ­recent years”.