Australia’s economy has bounced back stronger than many expected, more than a year after businesses shut its doors amid the COVID-19 pandemic which saw borders closed and lockdowns imposed.
In the latest quarterly Business Outlook report, Deloitte Access Economics partner Chris Richardson outlined several indicators of this economic growth, as well as a few predictions about the future.
Here are four key takeaways from the report:
1. Recovery is going well...
“Roaring back”; “really remarkable”; “increasingly solid”; “on course to be close to pre-pandemic normal”.
These were a few phrases that Richardson used to describe Australian and global recovery. The dominant message is: the wheels driving economic growth have been set in motion.
“Remarkably, living standards grew faster through 2020 than their average gains over the past decade – partly because the world is giving us a pay rise despite the recession (via prices for iron ore, LNG and thermal coal), and as it is giving us a cost cut too (via lower interest rates on our foreign debt),” Richardson wrote.
Richardson expects the currently at 5.8 per cent, will fall to 5.6 per cent by the end of the year; but pundits are expecting this figure later this week when fresh jobless data is released on Thursday.
The global rebound is also looking healthy as vaccines work to contain mutations and central banks around the world support economic recovery.
2. ...But it will slow down from here
While Australia’s economy is lifting overall, the pace of recovery will “gradually ease” from its big bump, especially given JobKeeper and the JobSeeker Coronavirus Supplement has wound down.
“That will see further catch up growth become more of a grind.” The speed of this ‘grind’ will depend on variables like COVID-19 mutations and the vaccine roll-out.
“But we continue to see vaccinations as the more likely winner of that struggle. So although some pain will linger – particularly as the mutations mean international borders will remain less-than-fully open for longer – most of Australia’s economy looks on course to be close to pre-pandemic normal by Christmas 2021.”
3. International travel won’t be back until 2024
Deloitte estimates that vaccines will hit ‘herd immunity’ levels by late 2021 or early 2022 Down Under – meaning international borders will re-open “very gradually”.
So don’t expect global travel to get back to normal for another few years.
“For Australia, some form of quarantine will remain for some incoming travellers for some time. That keeps international travel (both inbound and outbound) pretty weak in 2022, and it may not return to pre-pandemic levels until 2024,” said Richardson.
4. We shouldn’t be worried about inflation
If you’re in this camp, Richardson says it’s nothing to worry about, because inflation requires a “conga line of things” to happen before it rises.
“To begin with, unemployment and underemployment have to fall enough to give pricing power to workers (to hike wages) and businesses (to hike prices).”
“So don’t worry too much if you’re hearing inflation is a threat,” Richardson said. “It’s gonna take time and a whole lot of spending money before inflation is back.”
Additionally, the Reserve Bank of Australia has said it will be 2024 before we’ll see a lift in the record-low interest rate of 0.1 per cent.