Fydenberg’s MYEFO Budget update reveals big spending

Australia’s 2021/22 Federal Mid-Year Economic and Fiscal Outlook has been released and as expected, the deterioration in the deficit owing to the cost of responding to the delta variant was expressed. Nevertheless, higher commodity prices will buffer.

The update offers an optimistic picture, declaring “the Australian economy is rebounding strongly from the impact of the Delta outbreaks”. This is despite the recent wave of Omicron.

But Treasurer Josh Frydenberg told a news conference the expectation was that Omicron would not derail the recovery.

Economic growth, which was 1.5% in 2020-21, is forecast to be 3.75% in this financial year and 3.5% in 2022-23.

Frydenberg explained that the Unemployment Rate is forecast to fall to 4.5% by mid-2022, and 4.25% by mid-2023.

Wage growth is expected to climb from 2.25% this financial year to 2.75% next financial year and to 3.25% by 2024-25.

''Since the onset of the COVID-19 pandemic, the Government has committed an unprecedented $314 billion in direct economic support,'' the report explained.

''The Government’s response has enabled activity and employment to bounce back strongly after restrictions have eased, maintained momentum in economic activity more broadly and prevented labour market scarring. The economic response at this MYEFO has supported individuals, households and businesses through the Delta outbreaks. The response has built the foundation for future growth.''

AUD/USD implications

Meanwhile, the markets are more focused on the Reserve bank of Australia's well planted dovish tone. The RBA's governor, Phillip Lowe explained that there will be no rate rises in 2022 and the central bank divergence would be expected to hamstring AUD.