Unemployment is expected to fall to 6 per cent by the end of 2021, lower than the bank’s previous 7 per cent forecast, and to hit 5.2 per cent by the end of 2022.
Mr Evans said consumer confidence has rebounded far more quickly after the COVID-19 pandemic than from the recession of the early 1990s or the global financial crisis of 2008.
“The confidence profile is quite different,” he said. In the 1990s it took three years for confidence to recover, while after the GFC it took more than a year. “This time we’ve seen it in less than eight months.”
The economist highlighted very proactive government policy, both on a monetary and fiscal basis. “So that’s why we’re comfortable with 4 per cent growth next year.”
Areas of weakness
Still, there are areas of weakness. While iron ore exports are robust, other sectors are suffering from Chinese tariffs. “All of those sectors are going to be under enormous stress. So if you are a cotton producer or you’re in the barley business, yes, of course, it’ll be a very difficult time,” he said.
Coal accounts for about $20 billion of the export total, but about half of that figure is drawn from thermal coal with the rest from metallurgical coal, the economist said. China is still expected to require metallurgical coal exports from Australia because its booming economy demands increased steel production, he added.
On the agricultural side, out of a total of $13 billion of Australian agricultural exports, about $1 billion is from barley, $1 billion from cotton and $1 billion from wine.
“But the overall macro picture in terms of the income effect from China at the moment will be more than compensated by the rising iron ore prices,” Mr Evans underscored.
Westpac strategist Robert Rennie said Chinese imports from Australia are up by about 20 per cent year-to-date compared with 2017. Chinese imports from the world excluding the US are up by about 13 per cent, while imports from the US into China are down by about 13 per cent.
“That’s an incredible difference and really speaks to the macro rather than the micro impact on local industry,” Mr Rennie said.
International students
One area of the economy that Mr Evans is worried about is the Australian eduction sector. “We’ve got to find a way to get the foreign students back. They are very, very important for the construction sector, for the tourism sector,” he said.
With the arrival of vaccines, it will be within Australia’s control to try to replace foreign student numbers, he said.
The effect of a lack of foreign students has already flowed through to the housing market: “We’ve seen a doubling in vacancy rates in the inner-city apartments.”
Next year is expected to be uncertain for housing. However, the following year should be clearer with a global recovery under way and borders open for students. Westpac expects a 4 per cent rise in 2021, rising to about 10 per cent in 2022.
Mr Evans described such an increase in house prices as “pretty manageable” given the time frame. “I don’t really see the Reserve Bank or the authorities getting nervous about that until 2023 when we’ll start to see the advent of macro-prudential again.”