Banking News

Seven Reasons for Australian Economic Growth Optimism - AMP

(7 June 2021 – Australia) With Australia one of only three developed countries with GDP growth in the green and tracking above pre-pandemic levels, AMP points to seven key reasons for further optimism.

Following a significantly stronger than forecast rebound from the national pandemic lockdown through H2 2020, Australian growth decelerated slightly in Q1 2021 however is now tracking above pre-pandemic levels of activity. As a global comparison, while China is streets ahead, Australia has performed relatively strongly through the first and second waves of the COVID-19 pandemic.

GDP growth in Q1 2021 became more sluggish yet still hit a strong 1.8 percent quarter-on-quarter lift driven by raised consumer spending, in particular a concerted rotation back to services spending. Business investment also recovered strongly by 3.6 percent according to the Australian Bureau of Statistics (ABS).

Australia’s global economic outperformance reflects a combination of superior COVID outbreak control, affirmed by lower hospitalisations and deaths, less severe lockdowns and less self-regulation limiting mobility, in addition to a focused fiscal policy response that protected incomes, jobs and businesses. Countries with less coronavirus related deaths like Australia have had better GDP outcomes generally.

AMP highlights seven reasons for further optimism on Australian growth, including:

1. Business investment is strengthening
2. Vaccines will help underpin reopening and recovery
3. Global growth is recovering rapidly
4. Consumer spending growth is well supported
5. Housing investment will provide a strong contribution to growth
6. Fiscal stimulus continues
7. Monetary policy remains ultra-easy

AMP does highlight that uncertainties remain. Australia is vulnerable to new COVID outbreaks given the low level of vaccination (just 17 percent versus 51 percent in the US and 59 percent in the UK) as highlighted by the current lockdown in Victoria, the states fourth. Some parts of the economy are a long way from normal and tensions with China could escalate further.

“We expect GDP growth through this year of five percent and 3.5 percent next year. This in turn should underpin an ongoing rebound in corporate profits which, along with continuing low interest rates, will underpin a still rising trend in the Australian share market notwithstanding the risk of a correction in the next few months. Key risks to keep an eye on are coronavirus outbreaks, a likely further near term inflation scare and tensions with China” commented AMP Capital Head of Investment Strategy and Economics and Chief Economist, Dr Shane Oliver.