Westpac lift 2020 and 2021 growth forecast following September GDP growth
Westpac, Australia's second biggest bank, has drastically amended its growth forecasts for the next three years.
Westpac's chief economist Bill Evans now says GDP in 2020 will see a lift of 2.8 per cent, not the three per cent decline forecast. They also now predict a four per cent gain next year, compared to a previously forecast decline of two per cent.
They have however downgraded their 2022 forecast, from 3.5 per cent growth to three per cent.
"The key to the revision for 2021 is the expectation that the recent lift in consumer sentiment to a seven year will be sustained; the increased momentum in the housing market will continue; a likely commitment by the government to continue to target a lower unemployment rate in the 2021 Budget; the huge boost to markets and global growth prospects with the advent of vaccines; the significant buffer of savings that will accommodate a large fall in the savings rate; ongoing reopening momentum; a likely upward revision to the government’s currently overly pessimistic net migration forecasts," Evans says.
"The headwinds from deferred loans and the tightening of insolvency laws are now seen to be less threatening for the economy as the economy has gathered such momentum in the second half of 2020," Evans says.
Evans added that, under the new forecasts, Westpac expect the level of consumer spending and the level of GDP will return to the “end 2019” levels by the June quarter 2021.
"By end 2021 GDP will be around two per cent above the end 2019 level but still around three per cent below the level of GDP that would have been expected in the absence of COVID," Evans says.
"These revisions follow the stronger than expected print for GDP growth in the September quarter (3.3 per cent) compared to our forecast of three per cent and our revised forecast growth rate in the December quarter of 2020 from 1.6 per cent to 2.3 per cent."
Evans suggests the dominant message from the September quarter national accounts was the 7.9% surge in consumer spending, including 9.8% for services and 5.2% for goods.
Westpac are expecting consumer spending to lift by a further five per cent in the December quarter as the Victorian economy reopens. The VIC economy accounts for around 25 per cent of the national economy.
Evans says that as a result of the substantial near term boost to the growth forecasts, they have also lowered their forecasts for the unemployment rate, now predicting the rate at December 2021 to be six per cent, not seven percent, and by December 2022 the rate will be 5.2 per cent, not 6.3 per cent.
