The Morrison government is likely to be campaigning for re-election at the peak of GDP growth next year, as favourable conditions align to create a sweet spot of economic activity, leading economists say.
Forecasts from six major banks, including Australia’s four biggest lenders, show the federal election – which must be held by 21 May – will probably coincide with the highest quarterly growth rates before expansion slows.
All but one of the banks tip the current December quarter will produce the greatest quarter-on-quarter growth in coming years, averaging 2.25% across the forecasts.
National accounts figures for the October-December period are scheduled for release by the Australian Bureau of Statistics on 2 March, likely in the thick of the probable campaign. While the government can call a poll before then, no previous federal election has been held in January or February.
Catherine Birch, a senior ANZ economist, said that for those campaigning on a “jobs and growth” mantra, the data to be released in March “is going to be very good on both of those”.
ANZ predicts the economy will grow at 2.4% this quarter, and at a 2.1% clip in the March quarter. Expected further easing of Covid restrictions, combined with cashed-up households eager to spend, “will certainly provide that tailwind” to the economy, she said.
The coalition is already starting to talk up its economic record, even though GDP contracted 1.9% in the September quarter. That was the third-steepest decline on record, behind only the 2% drop in 1974’s June quarter and the 7% dive during the first Covid wave in the June quarter last year.
Treasurer Josh Frydenberg will release the government’s mid-year economic and fiscal outlook (Myefo) on Thursday. Among details dropped to the media is a more bullish Treasury prediction of jobs growth, with 60,000 more places expected, compared with the May budget.
Brody Viney, a senior NAB economist, said the economy was already gathering momentum. The September quarter’s drop coincided with about half of Australia’s population being caught in Covid lockdowns and was not as bad as had been feared.
“We’re in the midst of a really strong rebound from that,” Viney said. “We think that things look good for the next few quarters.” He predicted unemployment was likely to trend lower and business investment to pick up further.
One reason for optimism is that both households and businesses are sitting on a lot of hoarded cash, Treasury secretary Steven Kennedy said in October.
“Household and non-financial business deposits are almost $330bn higher compared to the end of 2019,” Kennedy said, adding household cash savings alone were up $145bn compared with the end of August 2020.
“The run-up in household and business balance sheets provides resilience and will continue to support activity throughout the recovery,” Kennedy said at the time.
Economists don’t expect the record low interest rates to be disturbed in the first half of 2022 at least, so there is unlikely to be an unpleasant surprise for those heavily in debt.
And while a tight labour market – with the jobless rate heading towards 4% – may constrain growth in sectors such as construction, any resulting higher wages will be welcomed by voters, if not employers.
“There’s obviously still issues around supply chains which are putting on price pressure, and that’s something that we’re watching really closely,” Viney said. “But we do think some of those things will resolve over the coming year as well.”
All of the banks surveyed predict post-election GDP growth will taper off in the second half of the year compared with the first six months of 2022.
Paul Bloxham, chief economist for HSBC’s Australian division, predicts the quarter-on-quarter growth rate to ease from 2.3% in the final three months of 2021 to 1.3% in the March and June quarters of 2022.
The forecast slowdown is based on states other than NSW and Victoria taking longer to adjust to living with the Covid virus as they open up later. “As that happens … it’s likely to weigh on activity to a degree in those locations,” Bloxham said.
Opening up internationally will also see a chunk of that pent-up consumer demand transferring overseas as Australians head abroad.
Bloxham added that on a global level, “we’ve done better than most of the developed world in terms of handling health and economic outcomes”, addressing a theme likely to feature prominently during the coming election campaign.
Frydenberg said on Wednesday that “as a result of our economic plan the economy is coming back strongly with consumers spending, businesses investing and more people getting back to work”.
“With 350,000 jobs coming back since the start of September, the RBA, IMF and OECD all see Australia’s unemployment rate being sustained at below 5% – for just the second time in more than half a century,” he said.
His Labor counterpart, shadow treasurer Jim Chalmers, said it was “welcome and unsurprising that the economy is recovering from the nation’s third-largest downturn in the September quarter”.
But he said it was not a real recovery “if working families’ real wages are going backwards and they can’t keep up with the skyrocketing costs of living”.
