Here’s what the experts predict for the future of Australia’s economy

Oct 03, 2020
Experts turn to their crystal balls to see what in store for the coming year. Source: Getty.

The words “unprecedented times” have been tossed around more in the past year than ever before – and for good reason. Enduring a global pandemic that triggers both a health and economic crisis is far from the norm, meaning,  more often than not, not even the experts are confident on what’s going to happen next.

But, with infection rates in Australia slowing down since the second wave in Victoria peaked in August and businesses slowly starting to open their doors to the public again, financial experts can now make some educated predictions about where the economy could be heading.

Cash rate

Comparison website Finder conducted a cash rate survey and asked 40 experts and economists for their opinions on the cash rate moves and other issues related to the state of the Australian economy. The survey found that 15 per cent predicted that the already record-low cash rate of 0.25 per cent will drop to 0.10 per cent this coming Tuesday when the budget is due to be released.

Meanwhile, an additional quarter of the experts predicted a similar cut in the next two months while just over half expected it to hold off until next year. Insights manager at Finder Graham Cooke said that a cut to the cash rate would be more symbolic than practical.

The cash rate has dropped by 125 basis points over the last year and a half – a further fall of 15 is unlikely to make much of a difference beyond showing that the RBA is taking action,” he said “Economists will be keeping a closer eye on community transmission of Covid-19 and the reopening of domestic borders than they will on the cash rate.”

Super guarantee increase

Opinions on the future of the super guarantee increase were split right down the middle. More than half (59 per cent) thought the compulsory 0.5 per cent increase to 10 per cent should not go ahead next year as planned, arguing that it would stunt wage growth and increase fees which would outstrip returns for low wage earners.

Saul Eslake an economist at Corinna Economic Advisory also included the issue of the gender super gap which, according to a report from 2018, shows women retiring with 47 per cent less super than men on average.

An increase in the [superannuation guarantee contribution] rate will not do anything to solve one of the major weaknesses…that it does not deliver adequate retirement incomes for a significant proportion of women,” he said. “How does making men contribute more solve that problem?”

On the other hand however, those in favour of the scheduled increase argued it would actually boost stunted wages, allow people to start rebuilding what they withdrew during the pandemic and give the savings system a much-needed boost. The experts were partially referring to the $33.5 billion worth of withdrawals made from the early superannuation release scheme according to the Australian Prudential Regulation Authority.

Borders and the market

Domestic borders are largely expected to be fully reopen before Christmas according to 89 per cent of the experts, while a Trans-Tasman travel bubble was announced on Friday. These predictions are already becoming a reality with Queensland’s roadmap showing plans to open borders to all of NSW in November after what would have been three months of closure as well as travel opening up between some states and New Zealand.

Despite the optimism regarding the resumption of travel, more than half (52 per cent) of the experts believed a stock market correction was in store before the year ends.

Nicholas Frappell of ABC Bullion said that it was mostly driven by a fear of a second wave of Covid-19. “The degree of market volatility and the likelihood of risk aversion arising from a second round of coronavirus makes [a market correction] a plausible outcome,” he said.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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