Australian economy forecast to rebound in 2021 as pandemic subsides: Poll

Australia has been relatively successful in curbing the pandemic and largely reopened its economy. PHOTO: AFP

BENGALURU (REUTERS) - Australia's economy, which entered 2021 in better shape than most of its peers, will gain further momentum from the successful domestic suppression of the coronavirus pandemic and supportive policies, according to a Reuters poll of economists.

Coronavirus-led lockdowns that began in March last year tipped the economy into its first recession since the early 1990s, breaking one of the world's longest growth streaks.

But Australia has been relatively successful in curbing the pandemic and largely reopened its economy, resuming activity, domestic traveling and consumer spending.

The Jan 12-20 Reuters poll of 34 economists forecast Australia's A$2 trillion (S$2.06 trillion) of gross domestic product would expand 3.5 per cent this year - the fastest since polling began for the year in April 2019, although slower than the government's growth projection of 4.5 per cent - after contracting 3.0 per cent last year.

"We see the recovery continuing, assisted by aggressive policy accommodation, both monetary and fiscal, and continuing growth in Asia. We assume vaccine roll-out will commence in February," said Andrew Ticehurst, economist at Nomura.

"While the broad outlook is favourable, with unemployment set to rise much less than earlier feared, we expect the recovery to be somewhat constrained by continuing Australia/China tensions and weak population growth, given ongoing travel restrictions."

Goods exports to China declined nearly 10 per cent to a four-month low in November as diplomatic tensions with Beijing saw the world's second-biggest importer impose heavy tariffs on imports of Australian coal, beef, barley and wine.

Iron ore - Australia's top export and a critical ingredient for China's massive steel sector - has so far been spared, but if China finds alternative sources, as it has for other goods, it could be very damaging.

All is not well

Although the country's jobless rate declined to 6.8 per cent in November from a July peak of 7.5 per cent, it remained above pre-Covid-19 levels of around 5 per cent. Some economists forecast it will hold above 6 per cent this year.

That was despite billions of dollars in tax concessions to businesses and aggressive monetary policy easing from the Reserve Bank of Australia.

The RBA, which has slashed its official cash rate by a cumulative 65 basis points to an all-time low of 0.1 per cent since the pandemic began, is expected to leave interest rates just above zero through at least 2022.

That is unlikely to stoke inflation as low wage growth keeps price pressures subdued, but it will push house prices higher.

In a report last week, the central bank said a 100-basis- point reduction in interest rates could push real housing prices up 30 per cent after about three years.

The poll forecasts consumer prices would rise 1.5 per cent this year and 1.7 per cent next, still below the RBA's comfort zone of 2 to 3 per cent.

For decades, wage and price growth have remained largely subdued, and with the global pandemic ongoing that is expected to continue.

In the third quarter, Australian wages grew just 0.10 per cent - the slowest pace on record - hurting household spending.

"No one really understands how bad the underlying picture is because no one's pulled away that plaster yet. If you think zero real wage growth and house price growth of 10 per cent is good news, then everything is looking great and if you don't, then everything's looking pretty rocky," said Michael Every, global strategist at Rabobank.

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