The Australian economy has rebounded strongly over the past 12 months since the great coronavirus pandemic of 2020 caused a short recession. The government mandated a strict zero-COVID-19 policy by implementing prolonged periodic lockdowns in the most populous states; however, economic activity was not severely hampered, due to various stimulus initiatives by federal and state governments.
Government fiscal and monetary policy was activated to support the economy which cushioned the impact on the economy caused by the pandemic. Currently, the lockdowns are finally ending with vaccination rates now surpassing 80% double dosage for eligible individuals, allowing Australia to begin returning to the new normal.
Review of 2021
It has been a year like no other with the great pandemic continuing to dominate local and global economies and testing governments’ ability to cope with a historic black swan event. The Australian government injected unprecedented amounts of stimulus into the economy to try and protect businesses and households from a deep and prolonged recession. These measures included JobKeeper packages for business to retain their workers, monetary policy measures by way of lower financing rates and boosting credit availability in the economy.
The Australian economy contracted 7% in the second quarter of 2020 (Q2 2020); however, it has rebounded strongly by expanding 9.6% in Q2 2021 year-on-year, illustrating the effective policies provided by the federal government.
The resurgence in the employment market was also unexpectedly strong, where the unemployment rate dropped from 7.4% in June 2020 to 4.5% in August 2021. Consumer spending has also recovered strongly from a historical low in Q2 2020 to pre-pandemic levels.
The extraordinarily large-scale deployment of monetary and fiscal policies by central banks and governments over the past year has laid the groundwork for subsequent higher inflation rates, hovering around 3%. The fast-spreading Delta variant has caused significant disruptions on the global supply chain, including Australia, causing ‘supply chain-included inflation’. The Reserve Bank of Australia‘s tapering started this September by reducing securities purchases from AU$5 billion (US$3.73 billion) to AU$4 billion (US$2.99 billion) per week, causing falling stimulus, in turn increasing financing cost in real terms.
Over the past year, Australian residential property markets and equity markets have both benefited significantly from lower interest rates. As of November 2021, Australian residential property prices increased significantly in both Sydney and Melbourne, by 30.4% and 16.8% respectively. Australia’s overall annual house price growth also made history, with the 21.9% growth becoming the fastest annual rate of growth on record. The equities market had a stellar year as well with the ASX 200 delivering more than 24% over the past 12 months, while returns on Australian bonds were -3.5%.
Banks in Australia benefited largely from economic recovery as investors are expecting lower loan deferrals, bad debts and revived credit growth. Meanwhile, demand for mortgages continues to rise exponentially on the back of high demand volumes for residential property.
Preview of 2022
The IMF cut its growth forecast for Australia’s GDP from 5.3% to 3.5% in 2021; however, it upgraded the forecast for next year from 3% to 4.1% as it expects a strong rebound in the Australian economy after restrictions ease.
With two of the largest states, New South Wales and Victoria reopening, the national economy should see a strong rebound, led by the tourism and educational sectors which are big contributors to the Australian economy, while utility companies will benefit as people return to offices, shopping centres and restaurants.
Although surging housing and energy prices put pressure on inflation rates, the Federal Reserve has already indicated that interest rates will remain at historical lows until 2024.
As for the Islamic finance industry in Australia, it has capitalised with high returns in the equity and property markets to provide investors with exceptional returns, while also enjoying exponential growth in Islamic mortgages.
There are more Islamic finance product and service providers now in Australia, with community awareness of Islamic finance rising steadily. This appears to be having a positive impact with product quality and competitiveness, ensuring that Muslim consumers are the clear winners.
The next step for the industry would be to have it’s very own first Islamic bank regulated by the prudential authority, to ensure the Muslim community has access to all financial products that conform to their religious beliefs. I am glad to say that a few entities have or are in the process of applying for an Australian banking license, which allows us to look forward to exciting times ahead.
In 2021, Australia has seen a strong recovery from the great pandemic of 2020, driven by strong growth in consumer demand, and supportive government fiscal and monetary policy. The expectation for Australia’d economic growth in 2022 is very positive; however, the inflation rate driven by surging energy and housing prices along with the foreseeable ending of government support will impose challenges on the economy.
The Islamic finance industry within Australia is going from strength to strength with larger providers providing leading products that now compete with the conventional market. All looks good for Australia’s first Islamic bank as well, with a real possibility in the short term.
If you are interested in Islamic banking, we are in the process of applying to become the first, Australian, 100% digital Islamic bank. Designed for mobile – made for people. We’re not a bank yet, but we want to be, and we want you to be a part of it. You can register your interest here.