Australia’s economy will continue outshining other countries grappling with thousands of daily COVID-19 cases so long as vaccines are rolled out on schedule, a Deloitte Access Economics report has found.
But Deloitte’s economists warned unless governments were willing to become more flexible with future budget and policy responses, it risks the country’s ability to fight future downturns and recessions.
And part of that policy flexibility, one of the report’s authors argues, is considering the case for a higher ongoing rate of JobSeeker.
Australia on track for 4.4 per cent economic growth
Deloitte’s new business outlook report, entitled ‘We Got This’, forecasts Australia’s economic output will rise 4.4 per cent in 2021 – driven by a 6 per cent increase in household spending and a 3.1 per cent hike in business investment.
That’s despite Australia’s population likely to be 550,000 lower in 2022 than the consultancy firm’s pre-COVID forecasts as border closures continue to reduce immigration rates.
Although the firm predicts unemployment will not dip below 6 per cent until early 2023, it anticipates roughly 300,000 workers will rejoin the labour force over the next 12 months.
But the pain for workers after a pay rise will continue, with wage growth anticipated to only hit 1 per cent in the calendar year, compared to the 1.4 per cent rise seen in the 12 months to September.
The report also suggested Victoria will be the main locus of economic growth through 2021, with the state’s nation-leading decline in 2020 giving way to a 5.3 per cent rebound.
New South Wales and Queensland are each expected to see their GDP increase by 4.2 per cent and 4.7 per cent, respectively, while other states are primed for a 2.5 per cent to 3.5 per cent economic expansion.
However, Deloitte’s findings are predicated on three key assumptions:
- That virus numbers remain contained, ensuring state borders remain mostly open and coronavirus restrictions continue to ease
- That international borders gradually reopen, with New Zealand in ‘coming months’ and most other countries by year’s end (though the firm acknowledged pre-COVID travel rates are unlikely until 2024)
- That vaccines are administered in Australia from February, with a rollout hitting targets of four million people vaccinated by the end of March, and the equivalent of herd immunity achieved by year’s end.
Economy tracking better than most thought
Deloitte Access Economics partner Chris Richardson told The New Daily only China, Taiwan, Vietnam and NZ – nations that effectively quashed virus outbreaks – started the new year alongside Australia on a stronger economic footing.
But he warned challenges still lie ahead for Australia, particularly as “big band-aids” – namely JobKeeper and JobSeeker coronavirus supplements – start to be ripped from the economy.
“The big band-aids come to an end in two-and-a-half months, and there is going to be a challenging time for the economy. It’s just looking rather less dangerous than even a few months ago,” Mr Richardson said.
“I think lots of people have thought this has gone on for so long, it must be worse than we thought it was – in practice, it’s substantially better than people feared.”
Mr Richardson cited the firm’s previous forecast – released in July – that predicted the economy would shrink 3 per cent in 2020.
However, ABS figures show GDP fell 3.8 per cent to September after a 7 per cent dip in the June quarter, with another lift likely to round out the calendar year.
Withdrawing government support in March still risky
Deloitte’s report also highlighted sectors that were disproportionately hit by lockdowns and border closures are likely to continue a ‘climb back from the abyss’.
Which, according to the firm, include accommodation, food and airlines.
However, negative shocks in 2021 would likely be felt most by industries usually affected in a ‘typical recession’, such as manufacturing, housing and sectors relying on discretionary spending, including retail.
Meanwhile, the report warned of dangers of withdrawing the ‘enormous protection provided by the federal government’ amid global economic uncertainty and a brewing trade war with China.
Deloitte’s Mr Richardson, who said pre-COVID that there’s a “good case” for increasing JobSeeker, said those considerations mean policymakers should be willing to enact stimulus measures swiftly.
“Remember by the end of March, the plan is millions will be vaccinated, and they’ll be the most vulnerable because of where they work or who they are – and the sorts of things causing lockdowns start to become increasingly in the rear-view mirror,” he said.
“We saw policy approaches are flexible, with the initial timing of pulling stimulus off in October obviously not long enough, and as we’ve seen today, it’s looking like a pretty solid policy approach.
“But we need to be willing to change course fast if we need to.
“We may still need to do more and start thinking about targeted support for sectors with links to international borders or specific locations.”