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Australia’s economy is currently suffering from its first recession in almost three decades. The impact of restrictions and border closures forcing parts of the economy to shut down in order to combat COVID-19, combined with the toll that fear and uncertainty have taken on demand, have devastated economic activity and caused mass job losses.
But the light at the end of the tunnel is starting to appear, as Australia’s active COVID case numbers continue to decline, and with much of the country now open for business (and a reopening for Victoria drawing closer).
Deloitte Access Economics’ latest Business Outlook report, forecasts that economic activity could grow by $54 billion in calendar 2021, starting to recover some of the $76 billion estimated to be lost through calendar 2020.
The figure below shows that much of this initial recovery in growth is forecast to be driven by household and public spending.
The forecast 5.6% growth in household spending for 2021 comes off the back of an expected 6.7% decline through 2020, and will be supported by government income support measures and tax cuts. It will likely bring with it a strong rebound in imports. The bounce back in household spending is expected to occur faster than the recovery in business investment, which will likely take longer to kick into gear, though is anticipated to pick up pace through 2021, with incentives in this year’s federal budget providing strong support.
Source: Deloitte Access Economics Business Outlook, September 2020
On an industry basis, COVID willing, 2021 looks set to continue the developing recovery in sectors smashed by the lockdowns of 2020. If we can keep COVID and associated restrictions at bay, then the likes of accommodation, food, entertainment, airlines and others will be climbing back from the abyss. And there’s more: by 2022, tourists and foreign students will be back in greater numbers. So yes, there’s some cavalry coming.
2021 negatives will be more those of a typical recession, with sectoral damage starting to centralise in the likes of manufacturing, as well as housing and commercial construction.
In 2022 and beyond, sectoral pain will be dominated by lower-than-expected population. The coronavirus crisis will leave behind a huge hangover, with an Australian economy permanently more than 3% smaller than our pre-COVID forecasts, mostly as closed borders mean our population will be similarly smaller. That’s two-thirds of a million missing people, consumers, workers and taxpayers (Treasury estimates that shortfall at a million).
So the longer term outlook is worse for all those selling into Australian markets, while it’s our exporters, miners and farmers in particular, who have less to fear on this score. And it’s most challenging for those industries whose market size is determined by the increase in population. Their pain, unfortunately, will linger.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Emma is a Manager with an econometric background, working in Deloitte Access Economics’ Macroeconomic Policy & Forecasting team. Since joining Deloitte Access Economics in early 2016, Emma has applied macroeconomic analysis and econometric techniques to a range of subject matter including social policy, labour markets, the construction sector, international trade and tax policy. She has developed multiple forecast models and currently runs Deloitte’s national macroeconomic forecast modelling. Emma also frequently conducts distributional modelling and inequality analyses.