Property prices, GDP both set to rise in a brighter 2021, economists forecast

After suffering its first recession in nearly 30 years, things could be looking up for Australia, with experts and economists predicting that things would return to normal “faster than most expect” in 2021.

On Wednesday, Australia reported its first quarterly economic growth of the year, with gross domestic product (GDP) rising 3.3 per cent in the September quarter when compared to the June quarter. It was the biggest quarterly GDP increase since 1976. But growth was still down 3.8 per cent when compared to the September quarter of 2019.

Treasurer Josh Frydenberg cheered the GDP data, saying that the Aussie economy was making a comeback after facing the greatest economic shock since the Great Depression, but cautioned that although the recession was over, the country’s economic recovery was not. “There’s a lot of ground to make up,” he added.

To get some insight into how quickly this ground may be made up, prior to the GDP announcement, comparison site Finder surveyed 40 experts and economists on their key predictions for 2021, which covered issues ranging from the recovery from recession to the property market turn-around, national reception to a Covid-19 vaccine and upcoming travel restrictions. Here’s what they foresee.

Leaving the recession in 2020

Australia suffered two successive quarters of economic contraction in March and June, creating a technical recession. But 79 per cent of the Finder survey respondents correctly predicted that Australia would record a quarter of growth before 2020 ended – as occurred on Wednesday – and all experts thought it was either likely or very likely the country would stay out of recession in 2021.

Graham Cooke, insights manager at Finder, said the economic recovery could largely be attributed to the near-$500 billion of government and central bank stimulus that had kept the economy churning as Australia grappled with the worse of the coronavirus. News of a vaccine, strong consumer spending and a resilient housing market also played a part in the bounce-back, he noted.

“It remains to be seen if our economy can keep moving uphill once the training wheels come off,” Cooke said. “The December quarter is likely to be robust as well, meaning it’s highly probable that we may see a gradual recovery of GDP through 2021.”

Reserve Bank of Australia Governor Philip Lowe told parliamentarians on Wednesday that the nation had indeed “now turned the corner and a recovery is underway”. The central bank kept the cash rate at 0.10 per cent on Tuesday, though, and Lowe said in his monetary statement accompanying the decision that GDP was not expected to hit the level it saw at the end of 2019 until the end of 2021.

The stimulus that helped soften the blow of Covid-19 came at a cost, with the country recording its worst budget deficit since World War II, Frydenberg revealed in July. Australia was $85.8 billion in the red in 2019-20 but that deficit was expected to rise to $184.5 billion in 2020-21.

Property market stabilising

The property market was expected to continue its recovery in 2021, with more than 80 per cent of the experts surveyed predicting that house prices would increase above 2019 levels next year. Just under 80 per cent forecast that sales volumes would make a full recovery to match or exceed 2019 levels.

The property market has already proved its resilience, despite predictions property prices overall could drop by as much as 30 per cent as Covid-19 shut down auctions and both buyers and sellers postponed making a move.

Property data provider CoreLogic found that, instead, property prices fell by just 1.7 per cent between March and October 2020 and October marked a 0.4 per cent increase in values, with prices expected to show a increase further in November. CoreLogic Australian property research head Eliza Owen attributed the unexpectedly low impact on the national housing market to reasons including record-low mortgage rates and deferrals on home loan repayments.

She added that the fact that the workers worst affected by Covid-19 shutdowns – those in the food, accommodation, arts and recreation sectors – were less likely to have mortgage debt meant that job losses did not have as damaging an effect on the property market as they otherwise might have.

Shopping, travel and the vaccine

When it came to Covid-19-related lifestyle changes, online shopping surged during the pandemic, with more than 8.5 million households choosing to shop online between March and October. As a result, more than half of the experts surveyed by Finder believed this was the death-knell for bricks-and-mortar department stores all together as shoppers stuck with e-commerce going forward.

“Department stores operate on an old-fashioned regular discounting model, where an item is advertised at an inflated price for several weeks, only then be ‘on sale’ for several more weeks,” Cooke said. “Consumers are becoming annoyed by this false discounting, and they prefer the flat low-cost pricing offered online.”

On the travel front, 93 per cent of the experts were confident the Trans-Tasman travel bubble between Australia and New Zealand would go ahead in 2021. Fewer experts (86 per cent), however, had the same confidence in the opening of domestic borders in 2021, despite most borders, including the long-shut Western Australia borders, re-opening in time for Christmas.

And when it came to international borders, just 14 per cent forecast that Australia would fully reopening its borders to international travellers in 2021 – a delay that Cooke said could be seriously detrimental to the economy.

“Tourism accounts for 3 per cent of the Australian economy, so unlocking our international borders will open up a much-needed economic lifeline,” he said. “Not opening international borders in 2021 could also be devastating for farmers and rural areas which rely heavily on working holiday travellers.”

Finally, even though the Australian government has provided funding for five separate vaccine programs, a little over a third of the experts surveyed by Finder anticipated that all Australians would get vaccinated once a national rollout occurred in 2021.

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