• 20/09/2020

How long will it take for the Aussie economy to return to growth?

https://au.finance.yahoo.com/news/how-long-will-it-take-for-the-australian-economy-to-return-to-growth-013515485.html

Yahoo Finance| 9 September 2020

The Australian economy is set to end 2020 lower than what it began but economists expect better years ahead.

The Reserve Bank believes it will take until 2022 for the economy to reach its pre-COVID levels — a view shared by several other economists in the private sector including from NAB and the CBA.

There have also been concerns raised that Victoria’s second lockdown could derail the national recovery even with other states loosening restrictions.

But what does the rest of the decade hold for the Australian economy?

Bloomberg’s James McIntyre is one of the few economists to have looked that far ahead.

This week he forecast that by the end of the 2020s, growth will reach an average 2.8 per cent. The expectation for 2020, however, is a 2.8 per cent contraction on an annualised basis.

That negative trend is expected to reverse by 2021, with growth of 2 per cent forecast and accelerating after that.

Despite the second wave in Victoria, McIntyre is optimistic about the recovery. He believes it will only delay and not derail the economy in light of other states’ experiences.

“Australia has suffered a lighter blow from the pandemic than other major advanced economies,” McIntyre said.

“Australia’s virus outbreak was not as severe as expected, and the economy began re-opening from the nationwide lockdown sooner than anticipated.”

McIntyre made a similar suggestion about the impact of Auckland’s containment measures on the rest of New Zealand’s economy.

He predicts a 4.1 per cent fall in New Zealand’s GDP in 2020 followed by a similar acceleration in growth in subsequent years.

Factors critical to growth

Australian GDP growth is predicted to be 2.3 per cent less than what it would have been if COVID-19 hadn’t happened.

But McIntyre says several factors will be critical to ensuring a return to growth. These include a pickup in capital accumulation, population growth (potentially spurred through immigration) and public investment.

“The public investment boost, both pre- and post-pandemic, should provide some support for productivity gains,” he said.

“A resurgence in such outlays is likely to be sustained given support from a loose monetary policy, and acknowledgment of the need for investment across transport networks to catch up with population growth.”

McIntyre has previously acknowledged the mining sector as one of the key sectors in Australia’s recovery, particularly in Western Australia.

While he thinks mining will be important going forward, he says Australia shouldn’t put all its eggs in one basket.

“Australia’s distance from global manufacturing centres favours a boost in non-mining investment across strategic sectors, as part of post-pandemic realignments of global supply chains,” he said.

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