At the end of World War II, Ben Chifley saw a vision of a powerful Australian economy recovering from years of pain. His vision was enacted first by his government and then for many years by the governments of Robert Menzies. Not since Chifley, has there been a vision of Australian national recovery on a scale such as now contemplated by Scott Morrison and Josh Frydenberg.
Figure 1: Major economic parameters
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SOURCE: Budget Paper No 1: 2020-21, Table 2: Page 1-8
The Treasurer expects that Australian GDP will fall by 3.75% in calendar 2020 and rise by 4.25% in calendar 2021. This compares to our most recent estimates of a fall of 3.5% in calendar 2020, followed by a rise of 4.0% in calendar 2021. Our outlook and that of the Australian government, are consistent with that of the Federal Reserve for the US economy.
These growth rates on a financial year basis translate into a decline of 1.5% in 2020-21 and growth of 4.75% in 2021-22. The government expects this will be followed by growth of 2.75% in 2022-23. This is followed by a growth of 3.0% in 2023-24.
Unemployment rises to 7.25% in mid 2021, before declining to 6.5% in mid 2022, then 6.0% in mid 2023, and 5.5% in mid 2024. We said last week that the RBA would continue quantitative easing until unemployment fell to 4.5%. This would now appear to not occur until some time after 2024. We see that nowhere in the outlook until mid 2024 does Australian inflation rise to the RBA target of between 2% and 3%.
In Figure 2 below, we see the Australian General Government sector aggregates. A powerful program of recovery is supported by a powerful program of fiscal stimulus not seen since World War II. A deficit of 4.3% of GDP is followed by a deficit of 11% of GDP in 2020-21. This then declines in 2021-22 to 5.6% of GDP. It then eases in 2022-23 to 4.2% of GDP. It then declines further in 2023-24 to 2.7% of GDP.
The result is that Australian Government net debt to GDP rises from 24.8% of GDP in 2019/2020 to 43.8% of GDP in 2023-24. Although these debt levels are very high numbers in Australian terms, they are far below what will be experienced by the United States and the United Kingdom.
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Figure 2: Budget aggregates
SOURCE: Budget Paper No 1: 2020-21 Table 1: 3-6
This article was first published by Morgans.
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