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16/12/2020

The Australian Economy Out Of Recession

Earlier this month, the latest GDP figures showed a 3.3% growth rate for the Australian economy during the September quarter. This has technically moved the country out of its first recession for 29 years.

Still, this figure was 6.8% lower than the December quarter for 2019. The RBA is suggesting that it will take more than a year to return Australia to its 2019 numbers. Furthermore, Australia’s unemployment rate continues to rise despite the 170,000 jobs created last month. Whilst the RBA expects to see Australia’s economy grow by 5% in 2021 and 4% in 2022, it and the federal government are not expecting to see unemployment rates back to ‘normal’ for quite some years.

Meanwhile expectations are that the official cash rate of 0.1% will remain in place for the next three years in support of growing the economy. Supported by various government incentives, improved households savings and uplifted consumer sentiment, we’re seeing a flurry of property demand which has sped-up house price recovery and is contributing to the economic recovery throughout the country.

As the federal deficit continues towards a trillion-dollars, many experts remain optimistic. Economists are telling us that the most important thing is the size of the debt compared to the size of the Australian economy. This explains planned government incentives to increase employment and a fast-track $50 billion in tax cuts designed to stimulate the economy.

Australia’s net debt to GDP ratio is projected to climb above 43 per cent by 2023-2024, however that’s relatively low compared to other advanced economies. Even when this happens, it will still be low by historical standards.

This further ads to expectations that we won’t see interest rate increases for some years. Economists say this is a good thing from a debt perspective as it makes it easier for the country to service its debt.

Time will tell how the current record low interest rates and ease of borrowing (from a consumer’s perspective) will impact on personal debt levels, and whether this will create new challenges for the economy further down the track.