So far, due to the flow of economic data, June is good news for Australia, despite the sudden resumption of COVID-19 restrictions and the restrictions on economic activity in Australia’s second largest state. It is the month of.
According to the National Accounts, which is the most comprehensive view of economic trends, the first quarter of 2021 showed extraordinary growth for the third consecutive quarter, with GDP rising to nearly 1% above the level at the end of 2019. The pandemic has begun to affect the economy.
Employment is also above pre-pandemic levels. Australia is one of the few countries in the world to be proud of these achievements.
Later, one of the well-known credit rating agencies, Standard & Poor’s, announced that it would remove the “negative outlook” warning on the Australian government’s AAA rating during the 2020 financial crisis. It is such an evaluation.
Last year, economists conducted a field survey to see if recovery from the new coronavirus infection would take the form of V, U, W, K, L, and even Nike’s swoosh. But Australia’s recovery is in the best shape.
What was right and why did pessimism spread?
One reason is that SARS-CoV-2 was suppressed more quickly and comprehensively than no one expected during the dark era of national lockdown. With the exception of Victoria, epidemics in areas since mid-2020 (if so could be called) were too small and short-lived to frustrate their strong recovery.
The second reason is that many economists, including this one, did not understand how the recession caused by the pandemic differs from the traditional recession. When the restrictions are lifted, economic activity quickly begins with the help of a jobkeeper scheme (temporary wage subsidy) that keeps employers and employees connected and is ready to resume where they left off. I have recovered.
It also predicts how much economic losses in high-risk sectors such as international travel and higher education will be offset (in a macroeconomic sense) by profits elsewhere, such as improving e-commerce and housing. I couldn’t do that either.
But while the news is good, it’s not entirely free of dark clouds on the horizon.
We don’t yet know how the latest outbreak in Melbourne will unfold, but with the exception of New South Wales, we know that state premieres will panic with the first signs of a COVID infection.
Then, while GDP is slightly above pre-pandemic levels, the fact is that the economy is putting off most of the growth that would have occurred in the next five quarters. From that perspective, the economy is still at least 2% smaller than it would have been.
In fact, the Treasury expects the economy to shrink forever as a result of the pandemic. This is partly due to the permanent decline in population, but also to the long-term economic “scars” of the 2020 downturn. Scarring is limited, but still occurs, because the duration of the slump is shorter than expected.
The economy will also suffer from travel abroad, skilled migration, and a recession in higher education. These add dimension to Australia’s economic vitality and increase consumer spending in other sectors, including home IT equipment and refurbishment. Cannot be easily replaced.
The execution of the quarterly extraordinary growth rate is probably delayed, and the growth rate will return to a more normal one. This is a reminder that Australia’s economic performance was mediocre before the pandemic and is characterized by low productivity growth, which is the source of improved living standards.
This is a mediocre situation in which economic performance returns unless there is a more collaborative policy effort to strengthen incentives and enable conditions for productivity gains. Fiscal and monetary stimulus has its limits and is not a substitute for autonomous growth.
Finally, despite the bright outlook for Standard and Poor’s, the country’s fiscal outlook remains a concern. This week’s upgrade of rating agencies was conditional on the maintenance of AAA ratings relying on a return to past fiscal discipline.
Currently, there is little financial discipline.
Robert Carling is a Senior Fellow of the Independent Research Center and a former IMF, World Bank, Federal and State Treasury Economist.
The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.