Strong Economic Bounceback Down Under
Strong Economic Bounceback Down Under
Australia’s economy has more than recovered from damage done by the pandemic. “Only five other countries can boast an economy that’s larger now than before the pandemic” says Kristian Kolding of Deloitte Access Economics.
In the first quarter the economy grew 1.8 per cent (GDP), with consumer and business confidence boosted by the successful containment of the virus and continuing government stimulus.
The country’s borders remain closed to international travellers; the Covid death-toll is very low. Although shutdowns have obviously hit hard sectors such as inbound travel and universities, they’ve also delivered some unexpected benefits to the domestic economy. Australians can no longer spend the A$65 billion a year they were spending on foreign travel.
Instead, it seems, they are splurging on homes. While the apartment market has been weak because of the collapse in net migration, the build-up in family savings has boosted the market in detached houses. In May house prices in Sydney were almost 15 per cent higher than a year before. The federal government has expanded its Homebuilder support package to encourage spending on home renovations.
The abundant anti-pandemic handouts and the closure of international borders – not due to be lifted before the middle of next year – has proved to be popular, judging by recent state election results.
The official line from the central bank is that with sustainable inflation of 2 to 3 per cent still a long way off, policy will remain stimulatory for the next three to four years. Governor Philip Lowe says that tightening of the labour market materially greater than now “is unlikely to be until 2024 at the earliest.”
Nevertheless, the longer the economy stays closed, the more likely inflationary pressures are to build.
