Australia has had an incredibly volatile year starting with a forecast surplus, followed by deep Budget gloom and ending with a minor reprieve as the economy rebounded strongly.
At the start of the year Treasurer Josh Frydenberg would have reeled back in horror and total disbelief to have a Budget deficit of $197.7 billion with a stubborn Budget deficit that will still be $45.7 billion in a decade.
However, after the unprecedented Budget horrors of the COVID-19 pandemic, this result is actually an amazing turnaround, with the unemployment rate of 6.8% seen as an incredibly positive result.
Lots of negatives but things better than expected
Everything is relative but this has been one of the most topsy-turvy economic years that could be imagined.
There are still plenty of significant negatives – official interest rates now plumbing the depths at just 0.1% and significant bond buying, static wages growth and widespread underemployment – but compared to the reality confronting many overseas countries that is an enviable.
Consider the household wealth figures that showed Australia hit a record high of $11,351 billion in the September quarter despite the pandemic, partly due to people squirrelling away savings in their banks.
Household wealth on the rises – underwritten by Government payments and consumer caution
Most of that increase came about from a 5.4% surge in deposits, a 1.2% lift in property values and rising superannuation balances.
Average household wealth grew by 1.6% or $6,850 to $441,649 per person.
Indirectly, of course, some of that figure also came through the raft of Federal Government payments such as Jobkeeper and Jobseeker which are now being measured in deficit terms in the Budget numbers.
A deficit that will keep on churning through for another decade of high Budget deficits to reach a cumulative deficit of $457 billion, with gross debt set to keep rising through to $1.3 trillion.
Trade war with China and COVID-19 major risks
From here on, a lot will depend on two major developments – the continuing trade war with China which remains a significant risk and the rollout of the COVID-19 vaccines and the progress of the virus through the Australian population.
A good result on both measures could see the employment and Budget position improve further while a bad result on both could see the gloomy debt projections that were envisaged back in the middle of the year revisited.
After all, the latest Budget update showed a $15.9 billion improvement but there are no guarantees that iron ore prices – to take one example – will remain at elevated levels.
Government won’t try balance books until 2023
The Federal Government has said that it won’t start to actively try to repair the budget until unemployment is “comfortably” below 6%, which at the moment isn’t projected to happen until 2023.
That situation is also obviously also fluid but all of these figures give both the optimists and the pessimists something to chew on.
We really have emerged into a glass half full situation, with the road out from here full of more than usual uncertainties and debt traps.