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The Federal Government’s updated economic outlook released last night includes a much more upbeat forecast for economic growth in 2021 than its earlier economic and fiscal update released in July.
Back in July, the government was expecting real GDP to fall by 3.75% in 2020 before increasing by 2.5% in 2021. Now, the forecast for 2021 is a more positive 4.25%.
The government has not released a new Economic Outlook since the July 23 release and merely included the new forecasts in an Economic Recovery Plan for Australia.
“The unemployment rate is expected to peak at around 8% in the December quarter of this year, before falling over the next few years as the economy recovers and businesses gain confidence to employ more workers,” the overview states.
“By the June quarter 2022, the unemployment rate is expected to be 6.5% and will continue to decline over the forecast period.”
Those figures are also much better than the July estimates, which had the unemployment rate peaking at around 9.25% in the December quarter.
Prime Minister Scott Morrison and Treasurer Josh Frydenberg say that jobs have started to come back as the virus has come under control and containment measures eased.
“Of the 1.3 million people who lost their job or were stood down on zero hours for economic reasons in April, almost 60% or 760,000 are now back at work,” they say in their overview.
The government has now spent $257 billion in direct economic support since the onset of COVID-19 and committed a total of $507 billion, or 25.6% of GDP, in overall economic support.
The deficit sits at a record $213.7 billion and Australia is in recession for the first time in 30 years.
The Treasurer also compared Australia’s economic contraction of 7% in the June quarter to falls of around 12% in New Zealand, 14% in France and around 20% in the United Kingdom.
The revised fiscal strategy means the government will wait until the unemployment rate is “comfortably below” 6% and on a path towards previous levels before looking to reduce debt as a share of GDP. For now, the focus is on jobs creation.
The overview also stressed that further outbreaks of the virus are likely until a vaccine is widely available.
“Any substantial outbreaks that affect the confidence of households to spend and businesses to invest and employ people remain a key risk to the national recovery,” it stated.
But hopefully the Treasurer is also right when he says: “Together Australia will come back. Together we will rebuild our economy and secure Australia’s future.”