Australia is one of just five nations – the others being Taiwan, China, Vietnam and New Zealand – who enter 2021 very well-placed economically, according to the recent Deloitte Access Economics Business Outlook.
Their chief economist Chris Richardson is upbeat about 2021.
So much so, his business outlook for the year is: “We got this.”
Covid numbers are very low, the vaccine news is excellent and confidence is rebounding.
He expects Australia will see some important recovery this year provided vaccines start to be administered in Australia from next month, state borders remain mostly open and virus numbers remain suppressed.
Some of his key forecasts are:
- The economic recovery will be big
- Interest rates won’t change
- Unemployment will slowly improve
- Manufacturing will grow slowly
- Flying will resume, bringing back tourists and students
We may have a V shaped economic recovery
Just as Victoria’s economic recovery has beaten many expectations, and will be the fastest-growing economy this year.
Similarly Australia’s recovery out of the COVID recession will be strong, according to Dr Richardson.
“Business conditions after vaccines will look very different to those before vaccines,”
Because the downturn was so sharp and the impact so big, the opposite would happen on the way out.
There’s a rapidly growing possibility that this recession — as deep as it’s been — will see a more V-shaped recovery than our current forecasts allow for,” he said.
History shows Australia’s biggest periods of growth have followed economic downturns.
There are still speed bumps ahead.
The report explains:
To be clear, although the damage of 2020 is winding back fast, it definitely hasn’t disappeared, and it will linger: the enormous protection provided by the federal government is being dismantled rapidly, the world economy is a mess, and the geopolitical backdrop for Australia looks more troubled than it has been for many years.
Then again, a bit of perspective is handy.
Australia has made many mistakes in juggling COVID, but so far, we’ve made fewer mistakes than most of the globe. You’d rather be here than almost anywhere else.
Wage and price gains have been on a downtrend for decades, both locally and globally, and the COVID crisis will keep both bumping along the bottom for some time.
Inflation may not hit rock bottom until mid-2022, and may not start to climb much until unemployment drops well under 6% – which we don’t see happening until 2023.
And, even allowing for the improved recovery prospects accompanying the good news on vaccines, underlying inflation may not get back into the RBA’s comfort zone (of between 2 and 3%) until late 2023 or early 2024.
COVID has crushed interest rates, and even though vaccines mean global recovery looks more assured, elevated unemployment will keep inflation and interest rates on a tight leash, as will central bank caution and the increased power of interest rates in a heavily indebted world.
Meantime Australia’s relative outperformance on COVID and the high flying iron ore price have the $A celebrating.
But both those factors are temporary, and we see US stimulus as more likely to send the US dollar up than it is to boost the Australian dollar.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
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