Fresh figures from Australia's mid-year economic report card show a promising outlook but COVID-19 variants, including Omicron, threaten to topple the federal government's high hopes.
The mid-year economic and fiscal outlook, released Thursday, shows an economy on the rebound with nominal GDP expected to reach 6.5 per cent in 2021-22 and unemployment to fall to 4.25 per cent by the June quarter 2023.
MYEFO's update coincided with the latest unemployment figures from the Australian Bureau of Statistics, which show the jobless rate in November dropped to 4.6 per cent from 5.2 per cent in October.
Treasurer Josh Frydenberg said the fiscal outlook showed improvements despite the unforeseen Delta variant wreaking havoc on the recovery plans handed down in the May federal budget.
"Despite the impact of Delta, which saw 13 million of our fellow Australians subjected to extended lockdown, [the] updated numbers show a stronger outlook than what was forecast to grow," he said.
"This result belongs to all Australians, who have sacrificed so much over the last two years.
"No country is better placed to face the challenges presented by the pandemic and Australians can look to next year with both optimism and confidence."
But Treasury's forecasts flag the ongoing global pandemic presents a major risk to projections as new variants appear.
In one possible scenario, a new variant of concern would delay international border re-openings by the first six months of 2022 and result in further lockdowns and physical distancing domestically to curb the spread.
It is projected economic activity would drop by $20 billion when compared to the 2021-22 financial year with GDP and unemployment rates contracting by 1 per cent on forecasts.
Mr Frydenberg and Finance Minister Simon Birmingham said the federal government remained confident despite the anticipated "headwinds" posed by COVID-19 variants.
"The global pandemic will continue to pose headwinds for domestic and global recovery for some time to come," they said in a joint statement.
"However, Australia's high vaccination rate and increased investment in health system capacity will assist in mitigating the challenges presented by the ongoing global pandemic, including managing new variants."
While the recent arrival of Omicron presented further uncertainties, Treasury predicted it would not disrupt re-opening plans or result in the re-imposition of lockdowns in Australia.
The mid-year outlook also shows around $15.9 billion has been reserved for decisions taken by the government but not yet announced.
Mr Frydenberg said additional contingency reserves had been planned following the impact of the Delta variant, which required an additional $25 billion in reserves to be spent following the May budget.
The extra headroom was necessary given uncertainties surrounding the COVID-19 pandemic, the Finance Minister added.
"We've had to put further spending in beyond what had been provisioned for in relation to the contingency reserves," Senator Birmingham said.
"But showing a prudency and cautiousness there is important."
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