The governor of the Reserve Bank, Philip Lowe, recently gave an important speech about how the economy is placed right now and how it’s likely to fare in the future.
Essentially, Dr Lowe said that while things are bad now, good times lie ahead.
First, let’s get the bad news out of the way.
Over the first half of 2020, according to Dr Lowe, “we are likely to experience the biggest contraction in national output and income that we have witnessed since the 1930s”.
● Unemployment is forecast to rise to 10% by June (it’s now 5.2%)
● National output is forecast to fall by 10% over the first half of 2020
● Total working hours are forecast to fall by 20% over the first half of the year
Economic growth could hit 7% next year
However, Dr Lowe also reminded us that this period will pass, and that a bridge has been built to get us to the other side.
“With the help of that bridge, we will recover and the economy will grow strongly again,” he said.
“That bridge has been partly built with the help of Australia’s strong balance sheets – in particular, the strong balance sheets of our governments, our private banks and of the Reserve Bank.”
Dr Lowe said that if social distancing restrictions are progressively lessened over the next few months, we could expect the economy to start bouncing back in the September quarter.
“If this is how things play out, the economy could be expected to grow very strongly next year, with GDP growth of perhaps 6-7%, after a fall of around 6% this year.”
I’m optimistic about the future
During my decades as a broker and business owner, I’ve seen a number of booms and busts, which have taught me that things are never as good or bad as they seem.
The good times never last forever, but neither do the bad.
I’m optimistic about the future. Dr Lowe was spot on when he said that, once the virus is contained, “all those factors that have made Australia such a successful and prosperous country will still be there”.
This isn’t just local bias either – Moody’s recently reaffirmed our AAA credit rating.
Australia is still the lucky country. Once the health crisis ends, the good times will return.