- The Australian economy is continuing to bounce back from last year’s brutal COVID-19 woes, according to the International Monetary Fund (IMF)
- The fund upgraded its global economic forecasts this week, including for Australia, highlighting “multi-speed recoveries” across all regions
- The global economy is now expected to recover by 6 per cent in 2021 and 4.4 per cent in 2022 — slightly higher than previous IMF projections of 5.5 per cent and 4.2 per cent, respectively
- For Australia, real GDP is expected to grow by 4.5 per cent in 2021 and 2.8 per cent in 2022 — outpacing many other advanced economies
- The IMF said the pace of vaccine rollouts, the extent of economic policy support and structural factors like a country’s reliance on tourism all play a key role in how well a country bounces back from the pandemic
- Similarly, targeted government support of the labour market is another key factor in protecting economies from the virus
- Federal Treasurer Josh Fryenberg said after $251 billion in direct economic support for Australian businesses and workers, the government still plans to unlock $240 billion in private sector savings through tax cuts, tourism support and more
The Australian economy is continuing to bounce back from last year’s brutal COVID-19 woes, according to the International Monetary Fund (IMF).
The fund upgraded its global economic forecasts this week, highlighting “multi-speed recoveries” across all regions and income groups. The key drivers for economic recovery are the pace of vaccine rollouts, the extent of economic policy support and structural factors like a country’s reliance on tourism.
The global economy is now expected to grow by 6 per cent in 2021, which is 0.5 per cent higher than the IMF’s last prediction. In 2022, the world economy is expected to grow by 4.4 per cent — slightly higher than the IMF’s previous projection of 4.2 per cent.
“Even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible,” the IMF said.
The fund said scientific breakthroughs in vaccine development and a shift in how people consume as a result of the pandemic have brought about surprising global recovery so far.
“Adaption to pandemic life has enabled the global economy to do well despite subdues overall mobility, leading to a stronger-than-anticipated rebound, on average, across regions”
Nevertheless, while the IMF is now projecting a stronger global economic recovery in 2021 and 2022 than initially thought, the fund’s outlook presents “daunting challenges” related to divergences in the speed of recovery in different countries and the potential for ongoing economic damage from the pandemic.
Where do we stand Down Under?
For Australia, the IMF is predicting real GDP to grow by 4.5 per cent in 2021 — one percentage point higher than the IMF’s outlook in January. This economic growth is expected to continue — albeit at a slower pace — into the next year, with 2.8 per cent growth projected for 2022.
According to the IMF, Australia’s recovery momentum is the product of a labour market recovery, which is, in turn, supporting a strong rebound in private consumption. The IMF expects unemployment to drop to 6 per cent in 2021 and 5 per cent in 2022.
Wealth effects from rising house prices across Australia are adding to the national economic recovery.
Comparatively, Australia’s expected economic recovery outpaces many other advanced economies: Japan’s real GDP is expected to grow by 3.3 per cent in 2021 and 2.5 per cent in 2022; Germany’s by 3.6 per cent in 2021 and 3.4 per cent in 2022; and Sweden’s by 3.1 per cent in 2021 and 3 per cent in 2022.
Meanwhile, the United States economy is expected to grow by 5.1 per cent in 2021, the U.K. economy by 5.3 per cent, and Canada’s economy by 5 per cent.
Ongoing economic support
Federal Treasurer Josh Frydenberg said the government’s $251 billion in direct economic support to keep businesses running and Australians in jobs has boosted the country’s COVID-19 recovery.
This is supported by the IMF’s report, which said targeted support of the labour market is one of the key differences between countries recovering well from the pandemic shock and those lagging behind.
“Unprecedented economic policy actions have prevented far worse outcomes — our estimates suggest last year’s severe collapse could have been at least three times as large had it not been for the swift policy support worldwide.”
However, now that the world is starting to recover, the IMF said targeted support needs to be gradually scaled back to avoid “sudden cliffs” as governments navigate limited policy space and higher levels of debt than before the pandemic.
Australia’s national debt is approaching one trillion dollars as a result of last year’s major coronavirus support measures.
Nevertheless, Treasurer Frydenberg said there are still more support measures in store for the recovering Australian economy.
“The next stage of the government’s Economic Recovery Plan will support private sector activity through a number of measures including tax cuts, unprecedented business investment incentives, record levels of investment in skills and training, infrastructure and targeted support for the aviation and tourism sector,” the Treasurer said in a statement today.
“These household and business incentives will help to unlock the more than $240 billion of savings accumulated throughout the pandemic and sitting on private sector balance sheets,” he said.
“Having outperformed all major advanced economies on the economic front in the last 12 months, there is no other country you would rather be in than Australia.”