Australia's economy could snap back much quicker and stronger from the COVID-19 pandemic, experts say, but the road to recovery has been described as “uneven” and “bumpy”.
Climbing out of its first recession in almost 30 years, the Commonwealth Bank predicts the economy could grow by 4.2 per cent in 2021, eclipsing earlier projections by an additional 1.7 per cent.
“Provided transmission of COVID-19 in Australia remains low, particularly community transmission, the strength of the economic recovery in 2021 will surprise many,” Gareth Aird said, head of economics at Commonwealth Bank.
“We believe the metaphorical ‘bridge’ has been built very well and sets Australia up for a prosperous next two years.”
The sudden arrival of the coronavirus pandemic led to the economy shrinking by 7 per cent in the June quarter, according to the Australian Bureau of Statistics (ABS), ending a 28 year streak of economic prosperity and drawing comparisons to The Great Depression.
“The similarities between the Great Depression and the COVID-19 pandemic from an economic perspective only pertain to the Q2 20 activity data,” Mr Aird said. “There is not much about the Australian economy in 2020 that is analogous to the Great Depression.”
The quarterly drop is expected to offset growth for the year. Forecasts have the economy contracting by 3.3 per cent.
But government support packages have kept “much of the economic furniture intact,” Mr Aird said, making it possible for a speedy rebound as restrictions are eased.
Good and bad signs
Some economic indicators show promise, but others signal more work needs to be done.
Consumer confidence has hit a seven year high, home loan commitments are up 25 per cent for the year, and property values are growing after posting five straight months of losses.
However, unemployment and underemployment continue to hover at higher-than-typical levels, while there’s concerns mortgage defaults will rise next year, leading to a deluge of distressed sales and a return to falling property prices.
The Reserve Bank of Australia (RBA) has said the recovery is underway but it will not be straightforward.
“Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago,” Philip Lowe said, governor of the RBA.
“Even so, the recovery is still expected to be bumpy and drawn out and the outlook remains dependent on successful containment of the virus.”
Jobs are key to economic recovery
About 932,000 jobs were lost between the March and June quarters due to the COVID-19 pandemic, but about 425,100 of these jobs were recovered in September, according to ABS figures.
The unemployment rate, sitting above its typical 5 per cent level at 6.9 per cent, is expected to increase by the end of the year to 8 per cent, the RBA said.
Underemployment statistics tell a similar story. Its 11.4 per cent level in September hovers about 3 per cent higher than usual.
“My number one priority is to get more Australians into work,” Prime Minister Scott Morrison said last week.
“As the country is safely reopening and businesses start to return to full steam, we need to connect those seeking work with available jobs.”