Australia’s forecast economic growth has been sharply downgraded by the OECD as COVID-19 Delta outbreaks leave major cities in lockdown, but the nation is expected to avoid a double-dip recession.
The Organisation for Economic Co-operation and Development expects the Australian economy to expand by 4 per cent in 2021, a 1.1 percentage point drop on its May forecasts. It is the biggest downgrade of any country measured by the Paris-based think tank in its interim economic outlook and is due to the lockdowns that have slashed activity in Victoria, NSW and the ACT.
Major cities across Australia have gone back into lockdown this year to stop the spread of Delta.Credit:Getty
It also slightly downgraded its Australian forecast for 2022, slicing it by 0.1 percentage point to 3.3 per cent.
Australia outperformed the rest of the world during 2020, contracting by 2.5 per cent. Some nations suffered huge falls in economic output last year, with Spain shrinking by 10.8 per cent, Britain by 9.8 per cent and France by 8 per cent.
But over this year and next, Australia is expected to trail the global recovery due to recent lockdowns.
The OECD said accommodative monetary policy should be maintained and fiscal policies needed to remain flexible depending on the state of the economy at the time.
“A premature and abrupt withdrawal of policy support should be avoided whilst the near-term outlook is still uncertain,” it said.
Despite the hit caused by lockdowns, initial fears of a double-dip recession have abated due to the plans of NSW and Victoria to start reopening their economies in the coming weeks.
The national economy is expected to shrink by more than 4 per cent in the current September quarter, prompting speculation it may be followed by negative growth in the final three months of the year.
But Deloitte Access Economics partner Chris Richardson said the focus now was on the rebound as vaccination rates increased and states started opening up.
“The starting point for recovery won’t be as deep [as last year] … we know the bounce-back is doable, we did it not so long ago,” he said.
Mr Richardson said unlike the recovery from last year’s lockdowns, there were doubts about how the economy would cope living with the virus this time around.
“It will be messy and there will be confusion in the transition stage,” he said. “In 2020, we were marvellously successful at terrifying people about COVID-19, but it has now made the exit strategy harder. It’s stunningly hard to get people to focus on hospitalisations and death rates, which will be the new leading indicator of economies, rather than case numbers.”
The question now was: “Are we the UK [with high hospitalisation rates] or are we Germany [with low rates]?”
Oxford Economics principal economist Sean Langcake said there were risks in the outlook but a rapid easing of conditions would help avoid permanent scarring.
“The spread of the Delta coronavirus variant will weigh on activity in the very near term, although this will contribute to a sharper growth outlook for 2022,” Mr Langcake said.
Research published by the firm on Tuesday shows a baseline scenario of Australian GDP growth downgraded to 2.9 per cent in 2021, rebounding to 3.8 per cent in 2022, due to a winding back of restrictions in the fourth quarter but tighter restrictions than previously expected.
In a “long-COVID” situation with further lockdowns, Oxford Economics tips GDP growth to reach 2.6 per cent in 2021 and 2.6 per cent in 2022. If consumers are hesitant and save more than expected, he said there would be a six-month delay in the recovery, putting growth at 2.7 per cent in 2021 and 2.4 per cent next year.
In an upside “boom” scenario where consumers spend significantly more than forecast, GDP growth would surge 3 per cent in 2021 and 5.3 per cent in 2022.
The ANZ-Roy Morgan weekly consumer confidence survey reached a nine-week high nationally this week, though NSW and Victoria are lagging due to lockdowns. In NSW, Victoria and the ACT, households are not planning to spend as much on home buying, travel, entertainment and education, according to Commonwealth Bank data.
CommSec senior economist Ryan Felsman said the nation might not return to its pre-Delta growth path until the second half of 2022.
“The post-lockdown rebound in retail spending in late 2021 is likely to be more gradual when compared to the sharp snap-back in the earlier stages of the pandemic last year,” Mr Felsman said.
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