Addressing an Australian Business Economists event on Tuesday, Treasury secretary Steven Kennedy said the nation’s economic recovery from the shock of COVID-19 had been “stronger than we have seen from any downturn in recent history”.
“I see two reasons for this stronger than expected recovery – first, Australia has had success in suppressing COVID-19 and protecting the health of Australians, more so than we hoped for in the early days of the pandemic,” Dr Kennedy said.
“The second reason for a stronger than expected recovery is that fiscal policy has been more effective than expected in maintaining economic and social relationships and contributing to growth.”
As a result, Dr Kennedy said the downturn in growth over 2020 had been lower than initially predicted, with the economy also set to rebound at a stronger-than-expected rate in 2021.
“After falling by 2.5 per cent in 2020, we expect the economy to grow by 5.25 per cent in calendar year 2021 and 2.75 per cent in 2022,” he said.
“Last year’s budget forecast a fall of 3.75 per cent and growth of 4.25 per cent in 2021. Ongoing momentum in the economy, the rollout of the vaccine and continued fiscal and monetary support are expected to continue to drive the transition of private sector led growth over the forecast period.”
While the pessimistic prediction that Australia’s international borders would stay firmly closed until mid-2022 had set growth back in this year’s budget, Dr Kennedy said the economy was already rebounding strongly on a per capita basis as domestic consumer confidence and spending increased.
“One downward condition was our expectations of population growth based on our updated assumptions about when borders might open – this is an area where Australia has experienced one of the largest changes compared to other advanced economies through lower overseas migration,” he said.
“While this downward revision will affect the size of the economy, it need not impact GDP per capita if the economic consequences of the pandemic are well measured. In fact, in per capita terms, according to the IMF, Australia’s GDP is expected to recover as fast as any major advanced economy.”
However, Dr Kennedy noted that restarting the skilled migration program as soon as possible “remains in Australia’s interests”.
“Migrants, particularly skilled working age migrants deliver an economic dividend for Australia, raising workforce participation in the longer term,” he said.
“Open borders provide economic opportunities for specific sectors such as tourism and education, and broader benefits that flow from being able to travel and connect with others in person rather than electronically. COVID is likely to be with us for many years, therefore preparing to live with COVID seems to be the likely future path for the globe and Australia.”
