The Australian economy looks set for solid growth in coming months, although debate continues on whether the unwinding of some COVID-19 support measures will hamper this progress.
The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, continues to point to growth above the long-term trend rate of around 2.75 per cent.
Westpac economists are predicting a solid growth rate of four per cent in 2021, led by consumer spending.
“With the unemployment rate falling and consumer sentiment currently near a 10-year high the consumer is expected to compensate for the likely impact on incomes from the winding down in a number of the federal government income support programs,” Westpac chief economist Bill Evans said.
“This growth profile is dependent on Australia’s continued success in managing the pandemic locally.”
The Reserve Bank is forecasting a growth rate of 3.5 per cent for 2021 as the economy recovers from last year’s recession.
The JobKeeper wage subsidy and the JobSeeker coronavirus supplement are due to finish in March.
Treasurer Josh Frydenberg told his coalition colleagues on Tuesday that it is important the JobKeeper wage subsidy ends as planned.
He says a Treasury review found JobKeeper is having some perverse outcomes that are preventing workers moving freely across the economy.
This has resulted in labour shortages in some areas.
“This successful and expensive program must end but other policies will fill that place,” he said, pointing to initiatives such as the government’s tax cuts.
However, economists told the Committee for Economic Development of Australia it was “very naive” to believe that the end of JobKeeper and the JobSeeker coronavirus supplement will not have an impact on the economy.
The national think tank’s annual economic and political conference takes on an international flavour on Wednesday when it will be addressed by Australia’s US ambassador and former Liberal senator Arthur Sinodinos.
His appearance comes at a time of major change in the US with the election of President Joe Biden, and as China wields its enormous influence across the global economy.
At the same time, Reserve Bank assistant governor for financial markets Christopher Kent will address a Finance & Treasury Association’s foreign exchange roundtable webinar.