2021 is here and the business outlook for the year ahead remains positively shaky.
In a special report on the economic outlook for 2021, employer body the Ai Group said business confidence remains low.
The biggest problem is weak demand for goods and services, according to Ai Group CEO, Innes Willox.
"The notion that COVID and its impacts would magically disappear when the calendar clicked over to 2021 was a fallacy. We are going to have to work harder than ever on rebuilding and regenerating our economy at a time of continued intense domestic pressure and increased global uncertainty and volatility,” he said.
"The next couple of months will be critical in signalling whether higher household confidence translates into enough additional spending to convince businesses to continue to lift employment and to commit to additional investment.”
This may be a tough sell with IBISWorld predicting business confidence will remain negative throughout 2021. This is supported by the Deloitte Access Economic Outlook for 2021 which warns that although the damage from 2020 is winding back fast, it hasn’t disappeared and is likely to linger.
“Inflation may not hit rock bottom until mid-2022, and may not start to climb much until unemployment drops well under six per cent – which we don’t see happening until 2023,” the report said.
“COVID has crushed interest rates, and even though vaccines mean global recovery looks more assured, elevated unemployment will keep inflation and interest rates on a tight leash.”
Surprisingly, the manufacturing sector fared better than most industries during 2020.
“This experience is different from previous Australian recessions (e.g., in the 1980s and 1990s) and reflects the very unusual circumstances of the current COVID-19 recession,” according to an Ai Group report on the impact of COVID on Australian manufacturing.
“In previous Australian recessions, employment in industrial sectors such as manufacturing and construction have fallen the hardest. In contrast, the COVID-19 recession has impacted the service industries such as travel, hospitality, and the arts the earliest and the hardest due to rapid activity restrictions, enforced business closures, and border closures.”
Global economic trends
China will overtake the United States to become the world’s biggest economy by 2028, five years earlier than previously estimated, according to the Centre for Economics and Business Research.
In its latest annual report the think tank identified the biggest global trends likely to emerge over the next decade.
It predicted strong economic growth for China averaging 5.7 per cent a year from 2021-25 before slowing to 4.5 per cent a year from 2026-30.
“While the United States was likely to have a strong post-pandemic rebound in 2021, its growth would slow to 1.9 per cent a year between 2022 and 2024,” the report said.
“Japan would remain the world’s third-biggest economy, in dollar terms, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth.
“The United Kingdom, currently the fifth-biggest economy would slip to sixth place from 2024.”
The report said the pandemic’s impact on the global economy was likely to show up in higher inflation, not slower growth.
“We see an economic cycle with rising interest rates in the mid-2020s,” it said, posing a challenge for governments which have borrowed massively to fund their response to the COVID-19 crisis.
“But the underlying trends that have been accelerated by this point to a greener and more tech-based world as we move into the 2030s.”