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What’s ahead for the economy…

- July 27, 2020 2 MIN READ

Anyway here’s the snapshot of the economic update;

Economic Contraction; the sharpest fall on record in the June quarter but expected to pick up in this September quarter with the easing of restrictions in most parts of the country. On an annual basis the economy is expected to contract 0.25 per cent in the last financial year and 2.5 per cent this financial year.

In the June quarter, the economy is expected to have experienced its largest quarterly fall on record of 7 per cent. Economic activity is expected to pick up in the September quarter, by 1½ per cent.

Unemployment rate; forecast to peak at around 9.25 per cent in the December quarter 2020. It is expected to gradually decline from the start of 2021 to be around 8.75 per cent in the June quarter 2021. Remember people on JobKeeper are not classed as unemployed even though they may not be working. So the “effective” unemployment rate is really around 15 per cent.

Budget deficit; in 2019-20 is now expected to be $85.8 billion (4.3 per cent of GDP). The estimates for 2020-21 have also been revised down significantly, with an expected deficit of $184.5 billion (9.7 per cent of GDP).

Gross Government debt; was $684.3 billion (34.4 per cent of GDP) at 30 June 2020 and is expected to be $851.9 billion (45.0 per cent of GDP) at 30 June 2021. Net debt is expected to be $488.2 billion (24.6 per cent of GDP) at 30 June 2020 and increase to $677.1 billion (35.7 per cent of GDP) at 30 June 2021.

You would have heard a lot about “V” or “U” or “W” shaped rebounds for the economy after the worst of this pandemic is over.

This chart from the Government’s economic update tends to point to “V” recovery… big plunge followed by a big recovery. But unemployment always takes longer to improve.

I’ve shown this chart before but it, again, illustrates that Australia’s Government debt levels were in much better shape going into this economic crisis than that of most other countries. This chart is from the last Reserve Bank board meeting.