Strong tailwinds are forecast to help. The Reserve Bank of Australia is expected to keep the cash rate at 0.1 per cent until at least 2024. Measures put in place to support housing and investment will support growth in 2021 and early 2022.
Global growth should be particularly supportive, with massive fiscal stimulus in the US driving strong growth and supporting the global recovery.
All of these factors will provide positive impetus for Australia. By late 2022, some of these tailwinds will be abating. Housing construction and equipment investment are both likely to turn lower in late 2022.
Consumer spending has bounced back strongly as restrictions lift and sentiment improves. Some of the earlier gains in the household saving rate have unwound, although it remains elevated, giving households a buffer as stimulus diminishes. A high level of cash deposits will also support spending.
The housing sector is rebounding sharply, helped by government support as well as low interest rates. Housing finance has picked up strongly. Building approvals rose more than 50 per cent between June and December, before pulling back in January. Bringing forward construction will inevitably create a shortfall of activity once stimulus is withdrawn, so activity is likely to fall in 2022.
Housing prices are being supported by low mortgage rates and the prospect of this continuing for an extended period. APRA is expected step in with macroprudential controls later this year, which will see house price growth slow in 2022.
Business investment has already turned higher, and we expect a solid recovery through 2021 as the federal government’s temporary full expensing scheme lifts spending on machinery and equipment.
Public demand will be a driver of growth. While federal support is tilted towards stimulating private demand, growth in government spending is likely to remain strong over the next year or so.
Closed international borders will continue to weigh on Australian services exports. The full rollout of a vaccine is likely to take some time, and a relaxation of international border controls seems unlikely until 2022.
Trade tension with China is a risk for the outlook. While ANZ Research has factored in some impact, increased tension is a downside risk for the exports outlook.
The labour market has improved rapidly but there is still a long way to go. The elephant in the room is the end of JobKeeper. But there are some factors that should smooth the transition, and the market is in a much stronger position than expected when JobKeeper was extended back in July.
With JobKeeper ending, ANZ Research expects a temporary rise in the unemployment rate of approximately 0.3 percentage points in the June quarter, but unemployment should resume its downward trajectory in the second half the year.
There is still a high degree of uncertainty around the outlook. The possibility of further upside risk for the labour market cannot be dismissed, particularly given the upside surprises seen since mid-2020.
But there are also downside risks. We may already be seeing a rebalancing between full-time and part-time work, after the full-time employment recovery initially lagged.
Felicity Emmett & Catherine Birch are Senior Economists and Hayden Dimes is an Economist at ANZ