The pandemic and “radical” government response, according to Commonwealth Bank analyst Gareth Aird, will make 2020 “the most unique year in the history of the Australian economy.”
“The government’s economic actions were extreme, and the policy response was unprecedented,” he said.
“In many respects, an experiment was done in real time, and the findings pleasantly surprised everyone.”
While Australia’s economy declined by 1.1 percent overall in 2020, following its first recession in over 30 years and the sharpest quarterly GDP drop in history, the second half of the year set new milestones.
Is Australia heading for a downturn?
It’s feasible that the numbers may fall, preventing a second COVID-induced recession later this year.
However, whether the precise definition of a recession is met or not, it is unlikely to make much of a difference because the country has been in a state of economic malaise for some time.
Is Australia set to enter a recession in 2022?
To say the least, the previous two years have been tumultuous, and while Australia’s economy appears to be thriving, the country’s economy normally follows a five-year economic cycle that includes both ups and downs.
A recession is defined as a period of negative growth for two-thirds of a year (six months). Surprisingly, Australia has not experienced a recession since the 2008 Global Financial Crisis (GFC).
Although, given the current state of ambiguity, it is vital to consider it a possibility.
What is the state of the Australian economy in 2021?
- The Australian economy expanded in the fourth quarter of 2021. When compared to the September quarter of 2021, GDP climbed by 3.4 percent in the December quarter. The Australian economy was 3.4 percent larger at the end of 2021 than it was before the pandemic began (December quarter 2019).
- The states most affected by Delta wave limits experienced the fastest growth. New South Wales (6.7 percent), Victoria (3.7 percent), and the Australian Capital Territory (1.9 percent) had the most demand growth in the December quarter as limitations were removed.
- We went out and shopped after the limitations were gone. Household spending climbed by 6.3 percent, with non-essential spending increasing the most (14.2 percent – the largest increase on record). Essential spending such as shelter and food, on the other hand, increased by 1.9 percent.
- Households now have more money than they did before the outbreak. Households continued to preserve a greater-than-usual percentage of their disposable income (13.6 percent), which is still higher than pre-pandemic levels, though down from 19.8% in the September quarter 2021.
- As more people got haircuts, the demand for personal services expanded. Production increased in the most restricted industries compared to the September quarter of 2021. The fastest-growing industry was air transportation (56.5%), followed by lodging and food services (26.1 percent ). Personal and other services (which includes hairdressing and beauty salons) rose by 15.4%, the fastest quarterly gain in the industry’s history.
- In 2022, house construction has slowed marginally, but corporations are poised to invest. Investment in housing, including new building and renovations, declined by 2.2 percent, but was still 5.3 percent higher than the same period previous year. Following significant growth in the first half of 2021, private company investment slowed. Businesses, on the other hand, aim to dramatically expand their investment, with capital expenditures predicted to rise by 10.8% in 202223.
- During the quarter, international trade slowed. Coal exports declined as a result of bad weather that made extraction difficult. Cereal exports, on the other hand, increased dramatically due to favorable growing circumstances. Total exports declined by 1.5 percent more than imports (0.9 percent ).
- Governments in Australia have continued to support the economy. Government income assistance to households was $6.9 billion greater than pre-pandemic levels in October, down $4.8 billion from September, while government subsidies were $8.8 billion higher.
- The Australian labor market has remained strong. The unemployment rate in December 2021 was 4.2 percent, the lowest since August 2008. Western Australia, South Australia, and Tasmania had the lowest unemployment rates. Across the country, more than 13 million individuals were employed.
- Wage growth has slowed in recent months. During the December quarter, the Wage Price Index increased by 0.7 percent, putting it 2.3 percent higher than the same period last year. Wage growth ranged from 0.3 percent for educators to 1.2 percent for retail workers throughout the quarter.
- Domestic price pressures grew stronger. Consumer prices increased 1.3 percent in the December quarter, bringing them to 3.5 percent higher than the same period the previous year. The most significant price increases throughout the quarter were for new homes and gasoline.
- The effects of Omicron on the Australian economy will be most noticeable in 2022. The Omicron variation had limited economic impact in the December quarter, with the new restrictions only affecting a few weeks in the final three months of 2021.
What is the state of the Australian economy in 2020?
The COVID-19 epidemic is dictating the economic picture for Australia and the rest of the world. The essential social distance limitations and other containment measures imposed to control the virus have resulted in a considerable contraction in economic activity, but when the pandemic is brought under control and containment measures are loosened, economic conditions will improve.
The first half of 2020 is predicted to see a significant drop in global GDP. The decreases in the March quarter were caused by a contraction in Chinese and eurozone activity, as well as the late-quarter implementation of containment measures abroad. The June quarter is likely to see a further drop in global GDP, with many countries expected to have quarterly GDP reductions. The ‘International Economic Conditions’ chapter delves deeper into the global picture.
Over the first half of 2020, the Australian economy is predicted to drop by about 10%; total hours worked are expected to decline by roughly 20%, and the unemployment rate is expected to rise to around 10% in the June quarter. In the June quarter, headline inflation is predicted to be negative, owing to decreasing gasoline prices and free child care; underlying inflation is expected to fall sharply.
The outlook for the domestic economy beyond the first half of 2020 is dependent on how long socialdistancing remains in place and its implications on economic activity. Other considerations include how extended uncertainty and low confidence affect consumer and business spending, hiring, and investment intentions. The lifting of constraints is likely to drive the early phase of the recovery, which will lead to improved employment outcomes as firms reopen, as well as an increase in consumer spending. Business investment decisions will have a greater impact on the recovery in the second half of the projected period. Because it’s difficult to be specific about the quantity and timing of these effects, thinking in terms of scenarios makes sense.
With the exception of specific restrictions, such as overseas travel, a reasonable baseline scenario is that the different restrictions are gradually eased in the next months and are mostly withdrawn by the end of September. If this happens, and the virus’s spread in Australia is kept to a minimum, GDP growth would likely pick up in the September quarter, and the recovery will continue from there.
However, if significant gains in viral control are made in the short term, most containment measures may be eased out over the coming months with less damage to company and consumer confidence and balance sheets, a greater economic recovery is possible. Much of the recent decrease in GDP growth and rise in the unemployment rate would be reversed in this scenario during the following few years.
On the other hand, it’s possible that the outbreak lasts longer than planned or flares up again, in which case mandatory domestic activity limits will be relaxed more gradually, international travel restrictions will be in place well into next year, and precautionary behavior will be extended. The rebound in GDP would be delayed in this scenario, and there would be more long-term consequences on household and corporate balance sheets, as well as damage to employment and supplier ties as jobs are lost and businesses collapse.
Is Australia on the verge of a recession?
Australia’s golden era has come to an end. The country went into its first recession since 1991 in 2020, and only very high growth in the fourth quarter of 2021 will likely keep it from going into another. Even a substantial rebound in 2021 will not be enough to disguise the country’s significant economic problems.
What happens in Australia during the recession?
When the economy of a country suffers a downturn, it is referred to as a recession. Economists can’t call it a recession if the Australian stock market has one poor day the country’s gross domestic product (GDP) must decline for two consecutive quarters.
What will the Australian economy look like in 2022?
However, our base scenario is that the Australian economy recovers rapidly following a sluggish (virus-affected) start to 2022, with unemployment falling below 4% by the end of the year and continuing to decline into 2023. Wage and price pressures are projected to stay high until late 2022, when they will stabilize. By 2023, the AUD is expected to settle around its long-run average of USD 75 cents, and house price growth is expected to slow in late 2022 before falling in 2023.
The year’s major theme will be economic policy. Regardless matter who wins the election in 2022, fiscal spending will remain high, boosting consumer demand in late 2022, but the budget will eventually need to be repaired. There are also concerns about monetary policy. While we believe the RBA will begin to adjust rates in late 2022 as a result of wage and price pressures, a lot depends on what is determined to be transitory on the inflation front and whether the RBA sticks to its guidance of waiting for hard evidence of inflation that is sustained within the band. This isn’t a simple undertaking, especially given the current supply-side pressures at work. Many of the elements that will likely feed into the RBA’s framework for assessing stable inflation and determining where rates should be to maintain inflation low and stable are difficult to assess in real time. One of these factors is the genuine level of full employment and how quickly any tightening in the labor market translates into quicker pay growth.
In the medium future, an emphasis on productivity growth and corporate investment, as well as population expansion, will most likely be the topic. As fiscal and monetary policy support fades and fiscal restoration begins, these considerations will become increasingly relevant.
What is the inflation rate in Australia in 2021?
According to the latest figures from the Australian Bureau of Statistics, the Consumer Price Index (CPI) climbed 1.3 percent in the December 2021 quarter and 3.5 percent annually (ABS).
Is the Australian economy robust?
According to the International Monetary Fund, Australia’s economy will grow to become the world’s 13th largest in 2022. The nominal GDP of Australia is expected to be approximately A$2.1 trillion (US$1.7 trillion). Although Australia has only 0.3 percent of the world’s population, it accounts for 1.6 percent of worldwide GDP.
What does the Australian economy’s future hold?
Based on the IGR’s estimates regarding the three Ps, Australia’s real GDP is expected to increase at a 2.6 percent annual pace from 2020-21 to 2060-61, signifying a 0.4 percentage point slowdown compared to the previous 40 years.