Reasons for economic optimism: treasurer

Colin Brinsden, AAP Economics and Business Correspondent |

Treasurer Josh Frydenberg says a new report gives reason to be optimistic about Australia’s outlook, but Labor believes the economy would be stronger if not for the government’s failures on the health front.

Deloitte Access Economics expects economic growth to remain above average in 2022, despite the challenges from the COVID-19 Omicron strain and faced with a softer Chinese economy, its number one trading partner.

Economist Chris Richarson argues in his latest quarterly business outlook that Australia is “match fit” for fighting COVID-19, being well vaccinated and used to juggling lockdowns and other challenges thrown up by the coronavirus.

He is not in the camp that sees current conditions as matching the lockdown pain experienced originally in the June quarter 2020 or with the Delta shutdown in the September quarter 2021.

“Omicron is awful, but for the first time in the coronavirus crisis it looks as if health and economic outcomes won’t be in exact lock-step with each other,” Mr Richardson told AAP.

Mr Frydenberg said the report is another sign of Australia’s resilience.

“No one is understating the challenges that we face here in Australia from the Omicron variant – both health and economic,” he told reporters in Melbourne.

“But there is good reason to be optimistic and confident about our future and the fundamentals of our economy remain strong.”

However, Mr Richardson is not as upbeat as the Reserve Bank of Australia on the economic outlook for 2022, forecasting a growth rate of four per cent compared to the central bank’s prediction of a 5.5 per cent expansion.

He said Omicron is weighing on everything from business investment to borders.

“In fact Omicron is moving so fast that we include an allowance that up to one half of the workforce in Australia spends an extra week being unable to work in the first half of 2022,” he said.

Shadow treasurer Jim Chalmers said the recovery is hostage to the Morrison government’s “incompetence and complacency”.

“You can’t have a healthy economy, a healthy recovery, without healthy people and without healthy workers, and that’s where this government has failed,” Dr Chalmers told reporters in Brisbane.

“The economic recovery and the economy more broadly would be stronger were it not for the government’s stuff-ups on rapid testing, and boosters, and all of the rest of it.”

Even so, Mr Richardson expects wage growth and consumer price pressures will lift very slowly over time, particularly as the labour market tightens.

“Each time the nation has managed to get its nose ahead of COVID, the job market has exploded with the exuberance of a labrador puppy taken for a walk,” Mr Richardson says.

“Even better, soaring job vacancies says there’s petrol left in the tank. COVID permitting, we see the unemployment rate flirting with four per cent by end-2022.”

The Australian Bureau of Statistics will release labour force figures for December on Thursday.

Economists are forecasting the unemployment rate returning to a 13-year low of 4.5 per cent, a level briefly seen last August and prior to the Delta variant lockdowns when the jobless rate spiked to 5.2 per cent.

RBC Capital Markets chief economist Su-Lin Ong believes Omicron may temper the return of migrants and students during 2022, despite more open borders, keeping labour supply constrained.

As such she now sees the unemployment rate at 3.8 per cent by the end of this year, compared to her previous forecasts of four per cent, and at 3.6 per cent at the end of 2023, instead of 3.8 per cent.