The road back from Delta storm
How we’ll escape recession
RESERVE Bank of Australia governor Philip Lowe says the Delta outbreak will not plunge the nation back into recession, as high vaccination rates and easing health restrictions pave the way for an economic “bounce back” towards the end of this year.
In a statement accompanying the decision to hold rates steady at a historical low of 0.1 per cent, Dr Lowe said lockdowns would trigger a “material” downturn in the September quarter. But he said the hit to growth was “expected to delay, but not derail, the recovery”, predicting the economy would be back on its pre-Delta path by the second half of next year.
Dr Lowe’s optimism will be aimed at providing some confidence to the hundreds of thousands of workers in NSW and Victoria who have already been stood down because of lengthy lockdowns and face an uncertain future as authorities race to reach the Doherty Institutes’s 70-80 per cent inoculation thresholds.
Economists are predicting the economy could contract by as much as 4 per cent over the three months to September – which would be the second largest quarterly downturn in recorded history after last year’s 7 per cent slump.
Dr Lowe conceded that “GDP is expected to decline materially in the September quarter”, and that “the unemployment rate will move higher over coming months”.
“As vaccination rates increase further and restrictions are eased, the economy should bounce back,” he said.
“There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year.
“Much will depend on the health situation and the easing of restrictions on activity. In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”
CBA head of Australian economics Gareth Aird described Dr Lowe’s scenario as “optimistic … though it is plausible”. “It probably means that the economy will need to have clear air from Covid-19 by around March or April next year to get to (the RBA’s) pre Delta path by mid 2022,” Mr Aird said.
AMP Capital chief economist Shane Oliver expects the lockdowns since May to wipe $28bn off the economy.
“While the RBA has not provided updated growth forecasts it still looks very optimistic on the outlook for the economy into early next year,” he said.
The RBA board also announced it would reduce the pace of weekly bond purchases from $5bn to $4bn “until at least February 2022” – a decision which surprised many in financial markets, who had expected Dr Lowe to renege on a plan announced in early July. On the markets, the ASX 200 closed up 1.8 points at 7530.3 points. The Australian dollar was trading at US74.13c late on Tuesday.