2021 economic survey points to brighter times ahead

Suddenly, economic forecasters are optimistic.

Six months ago the forecasting team assembled by The Conversation was expecting Australia’s recession to continue into 2021, sending the economy backwards a further 4.6 per cent throughout the year.

This morning, in the survey prepared ahead of the Reserve Bank board’s first meeting for the year and an address by the Reserve Bank governor to the National Press Club on Wednesday, the same forecasting team is upbeat.

It expects the recovery that began in the September quarter of last year to continue, propelling the economy forward by a larger than normal 3.2 per cent throughout 2021, with growth slowing to more sedate 2.1 per cent per year by the middle of the decade, still well above than dismal 1.7 per cent per year expected six months ago.

The unemployment rate is now expected to remain near its present 6.6 per cent throughout 2021, instead of soaring to almost 10 per cent as expected six months ago.

But improvement in the unemployment rate is expected to be slow, and as house prices and share market prices climb, most of the panel expect the Reserve Bank to lose its patience and begin to lift interest rates from their emergency lows before the end of next year, ahead of its published schedule.

The 21-person forecasting panel includes university-based macroeconomists, economic modellers, former Treasury, IMF, OECD, Reserve Bank and financial market economists, and a former member of the Reserve Bank board.

Economic growth

Only two of the panel expect the economy to shrink further in 2021.

The rest expect the economy to grow, two of the panel by at least 5 per cent, something that isn’t out of the question given that the economy shrank by 7 per cent during the worst three months of the 2020 coronavirus restrictions and clawed back only 3.3 per cent in the three months that followed.

Panellist Saul Eslake, who forecast growth of 3.5 per cent in 2021 six months ago, is now forecasting growth of 5.25 per cent, saying the transition away from JobKeeper and other supports has been going more smoothly and the property market and residential building market have holding up much better than he had expected.

Growth will be constrained by unusually slow population growth, a gradual tightening of government purse strings and anticipation of higher interest rates.

China’s 2021 growth, expected to be 4 per cent six months ago, is now expected to be 6.3 per cent as it reaps the fruits of having recovered early from its coronavirus crisis with its production systems intact. Panellist Warren Hogan cautions that longer term China is likely to place less importance on economic growth and more on military adventurism.

The continuing COVID crisis in the United States is expected to push its recovery out into the second half of the year as vaccination programs and President Biden’s stimulus measures take hold.