In the June quarter, the Australian economy increased by 0.7 percent, slowing from the months before the Delta strain swept wildly throughout New South Wales and Victoria.
The figure, reported on Wednesday by the Australian Bureau of Statistics, implies Australia has escaped a technical recession for the time being, ahead of a significant contraction in the September quarter owing to lockdowns in its two most populous states.
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.
Is a recession expected in 2021?
Unfortunately, a worldwide economic recession in 2021 appears to be a foregone conclusion. The coronavirus has already wreaked havoc on businesses and economies around the world, and experts predict that the devastation will only get worse. Fortunately, there are methods to prepare for a downturn in the economy: live within your means.
Is Australia experiencing a downturn or depression?
The Australian economy shrank by 6.3 percent in the year to June 2020, and economists believe that’s as bad as it gets, with most predicting a modest rebound in the current September quarter, despite Melbourne’s lockdown.
Despite the lack of precise ABS numbers, reasonable estimates place the economic collapse at the start of the Great Depression in 1928-29 at 6.2 percent quite similar to what we’ve just experienced.
But, to add salt to the wounds, the economy dropped another 9.7% in 1929-30 and another 2.1 percent in 1930-31.
According to SGS Economics and Planning economist Terry Rawnsley, the Depression was distinguished by three years of continuous, catastrophic economic downturn.
“Overall, the Australian economy shrank by 17.1% over the three-year period,” he stated.
In a 2009 address, David Gruen, the current head of the Australian Bureau of Statistics, made a similar comparison between the Great Depression and the global financial crisis.
“The continuing decline in economic output for the next two years, before recovery took hold in 1933, was what turned a recession in the 1930s into the Great Depression.”
As a result of the ongoing decline in economic activity, unemployment rose from 4.2 percent to over 20 percent, then remained around 11 percent until the mid-1930s.
As a result of the high unemployment rate, there were fewer people with disposable income, prolonging and deepening the recession.
Unemployment did not return to pre-Depression levels until World War II mass mobilization.
Unemployment is currently at 7.5 percent and is predicted to grow to almost 10% by the end of the year.
What is the current state of the Australian economy?
Australia’s GDP growth rate is predicted to return to 3.5 percent in 2021, after falling to 2.4 percent in 2020, according to the International Monetary Fund. Our GDP is expected to expand to 4.1 percent in 2022, according to the IMF, as the economy and international borders reopen. Australia’s financial situation is stable.
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 declining 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 Australia’s inflation going to rise?
Last year, pandemic-related economic disruptions were responsible for the majority of price hikes seen by Australian consumers.
Record-high gasoline prices pushed up transportation expenses, which in turn pushed up freight rates for a variety of items.
The cost of building materials has risen dramatically, resulting in increased prices for new homes, major renovations, and maintenance.
According to the Bureau of Statistics, high levels of building construction activity, combined with material and labor shortages, resulted to the highest increase in new home prices in six months since September 2000.
Because the federal government’s HomeBuilder grant was cutting out-of-pocket payments for new dwellings being purchased, new dwelling prices climbed for consumers after the subsidy began to fade.
When you look at the items and services that witnessed price hikes, you’ll notice that many of them were unavoidable for consumers.
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.