The OECD says Australia’s economy will grow 4.1% in 2022 – suggesting the worst downturns may be behind us

The OECD says Australia’s economy will grow 4.1% in 2022 – suggesting the worst downturns may be behind us
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  • Australia’s economy will likely grow 4.1% next year, the Organisation for Economic Co-operation and Development says.
  • The removal of COVID-19 restrictions and household savings will help power that recovery, the organisation added.
  • The figures build on better-than-expected national accounts data for September.
  • Visit Business Insider Australia’s homepage for more stories.

Australia’s economy is projected to grow 4.1% through 2021, the Organisation for Economic Co-operation and Development (OECD) says, building on better-than-expected national accounts data and hopes the Omicron variant of COVID-19 will not undo the nation’s reopening plans.

In its latest economic outlook, published Wednesday, the OECD projected Australia’s gross domestic product (GDP) will grow 3.8% through 2021, before building 4.1% next year, and 3% in 2023.

The predictions mark a significant upgrade from the OECD’s June report, which suggested Australia’s economy would grow 3.4% through 2022.

“The economy is recovering as strict containment measures first imposed in some states in mid-2021 have now been lifted,” the organisation noted.

A downturn in consumer demand, and billions in government support payments, contributed to Australia’s household savings ratio escalating through the September quarter.

The OECD believes these cash reserves will boost the economy in the months to come.

“Given that most employment relationships were preserved during the most recent lockdowns, a rapid unwinding of accumulated savings could drive a stronger rebound in activity in the coming months,” the report said.

The removal of border restrictions and the long-delayed return of working migrants and international students will boost the nation’s tourism and education industries, the OECD said.

Easing border protections are also slated to have a positive impact on Australian exports, further boosting trade figures, even as lingering tensions with China “represent a downside risk.”

Inflation is also expected to rise, partially due to supply-chain holdups, the OECD noted.

However, wage pressures “are expected to remain contained,” squeezing the Reserve Bank of Australia’s expectation for wages to rise 3% by late 2023.

The OECD’s broad optimism builds on the latest national accounts data, which showed the economy shrank -1.9% in the September quarter.

That downturn was the third-largest quarterly dip in Australian history, but still significantly better than many economists had predicted.

Speaking on “Sunrise” Thursday morning, Treasurer Josh Frydenberg said, “It is looking promising for the New Year, as far as the economy is concerned.”

Billions of dollars in accumulated household savings will “be spent on tourism, accommodation, hospitality, upgrading the house, or indeed other various expenses,” Frydenberg said.

“That will help generate more economic activity, and more economic activity means more jobs.”

But the September quarter downturn was never necessary, Shadow Treasurer Jim Chalmers has argued, blaming the federal government’s comparatively slow vaccine rollout as a key contributor to harsh lockdowns.

“It didn’t have to be that way,” Chalmers told ABC’s “News Breakfast”.

“The government said the economy was recovering this time last year and in the May budget, instead we got the third biggest contraction in the history of the national accounts.

“We want the economy to recover from here, but we can’t be complacent about it because the government has crowed about a recovery before, and instead delivered what were pretty horrific numbers yesterday in the national accounts.”

Notably, the OECD report calls on Australia to ensure its “national climate strategy is comprehensive, effective and inclusive.”

“We recognise good climate policy is good economic policy,” Chalmers said, but dodged calls to reveal Labor’s policy platform ahead of the next election.