Bleak 2020 forecast for the Australian economy

The Roaring Twenties, thanks to Hollywood, are famous for Gatsby-esque decadence - liberated women and a post-war economic boom. In Australia, the 1920s kicked off with a three-year recession, which was tempered by government borrowing and strong export trade in wool and wheat. 

For UNSW Economics Professor Richard Holden, the beginning of this century’s twenties is looking bleak.

“I think it’s going to be a tough 2020 for the Australian economy. We’re going to see a continued slow wage growth, continued slow economic growth, and I think there will be more downward pressure on interest rates,” he said.

Professor Richard Holden

Following the last interest rate cut of 0.75%, Prof. Holden believes the Reserve Bank will apply quantitative easing in an unconventional monetary policy. 

“I think they'll cut another one or two times down to somewhere between 25 and 50 basis points,” he said. This will result in a continuation of weak consumer spending, poor consumer confidence, and weak GDP growth.

Holden calls for a significant increase in government spending and continued aggressive monetary policy to improve our economy - adding that an end to the trade war between the US and China would be helpful.

Looking abroad, UNSW’s J.W. Nevile Fellow Tim Harcourt sees a resolution to the US-China trade war before the US 2020 Presidential election in November. Harcourt says President Trump wishes to show a victory to the swing states that he won over Hilary Clinton in 2016. 

“Whilst the tariffs might be hurting soybean farmers and manufacturers in the Mid-West there is appreciation that a President finally ‘stood up’ to China and ‘made them play by the rules’,” the Airport Economist said. 

Harcourt said while Australia is in the invidious position of not wanting an escalation of the US-China trade dispute, we don’t want the bilateral negotiations to go too well. A US-China ‘sweetheart’ deal that re-introduces ‘managed trade’ could cut Australian exporters out of key markets.

Tim Harcourt, UNSW Business School

The J.W. Nevile Fellow quoted the recent DHL Export Barometer, which found 45% of Australian exporters believe the US-China trade dispute is creating a challenging environment, and support for China’s ‘Belt and Road’ initiative has dropped by 10%. 

Harcourt also listed tensions between South Korea and Japan, and the upcoming Taiwanese election as having disruptive potential for Australian exporters and consumers in 2020.