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Tracking the recovery

With more than 95 million COVID-19 vaccine doses already administered around the world, it seems that some of the COVID uncertainty might finally be receding. In Australia, the federal government’s vaccination program is slated to begin later this month, providing an opportune moment to take stock of where Australia sits in the global health and economic recovery.

The good news is that Australia is well positioned on both fronts. In a study released last week, the Lowy Institute ranked Australia 8th globally in terms of its health response to the pandemic, and 4th amongst countries with at least 15 million citizens.

Australia also appears poised for a rapid economic recovery, having experienced a record (but still modest by global comparisons) 7.0% decline in output in the June 2020 quarter. The most recent OECD forecasts suggest that Australia’s economy will return to its pre-COVID size towards the back end of this year, while our own more recent Deloitte Access Economics forecasts suggest that benchmark may actually have already been achieved. On top of this, the labour force has effectively returned to 2019 highs, with 9 out of 10 jobs lost through the crisis now back.

So how does this compare with our trading partners?

Chart: June quarter trough and duration of recovery for selected economies

Source: Deloitte Access Economics 2021; OECD Economic Outlook, December 2020; National Bureau of Statistics of China 2020.

China is the global outlier when it comes to the COVID recovery. After bearing the brunt of the early months of the pandemic, three consecutive quarters of growth saw the Chinese economy return to its pre-COVID level by the end of last year – the only major economy to experience growth through 2020.

The USA is also positioned for a strong recovery, in spite of a botched response to the health crisis and lagged fiscal stimulus and support. We forecast GDP to return to pre-COVID levels in the second half of this year, ahead of most advanced economies, with a significant vaccine effort now underway. The IMF forecasts that by 2022, the US will have experienced the mildest GDP losses from the pandemic of any major economy or group of economies – just 1.3%.

There are divergent storylines amongst our North East Asian trading partners. COVID cases have eased from their January peak in Japan, but economic growth is set to be slow, with both the IMF and OECD predicting recovery at the very end of 2022, while Deloitte Access Economics forecasts suggest a 2023 recovery may be more likely. In contrast, Korea’s economy is estimated to have shrunk by just 1.1% in 2020 and will recover to pre-COVID levels by the middle of this year, with growth of around 3% forecast for 2021 and 2022 by the IMF.

New Zealand appears likely to lag Australia’s economic recovery in spite of leading the world in suppressing the virus. Our antipodean neighbour saw its economy shrink by 2.2% in the year to September and is not expected to reach pre-COVID output levels until the middle of this year.

Europe has suffered on both health and economic scales. Following three severe waves of the virus, the 17 major Eurozone economies will likely see GDP below pre-COVID levels until 2023. Even worse is the UK, where the economic impact of the pandemic has been compounded by its withdrawal from the EU. We estimate that the British economy is 11.2% smaller than at the start of the pandemic, and that recovery is unlikely until the end of 2023.

So, Australia may not be leading the global economic recovery, but it is well ahead of many advanced economies and global averages. Given Australia’s success in containing the virus and mitigating the economic impact of closed borders and lockdowns, it seems better positioned than most to hit the ground running in 2021.