RBA Governor Phillip Lowe. Source: REUTERS
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  • Recent lockdowns are expected to hit GDP growth, but the Reserve Bank of Australia (RBA) is forecasting a bounce-back once restrictions ease
  • “While the exact timing of the bounce-back is difficult to predict, it is likely to start well before the end of the year,” RBA governor Phillip Lowe says
  • Mr Lowe says as a rule of thumb, household consumption in areas that are locked down is typically around 15 per cent lower than it would be otherwise
  • The central bank’s modelling has GDP growth to be a little over four per cent over 2022 and around 2.5 per cent over 2023
  • This modelling, however, relies on the assumption that a “significant share” of the population is vaccinated by the end of this year

Recent lockdowns in Melbourne and New South Wales will likely result in a GDP decline in the September quarter, but the economy is expected to bounce back quickly once restrictions ease.

Reserve Bank of Australia (RBA) governor Phillip Lowe told a House of Representatives Standing Committee that spending rebounds quickly once limitations are relaxed, both in Australia and abroad, especially if people are optimistic about the future.

“While the exact timing of the bounce-back is difficult to predict, it is likely to start well before the end of the year,” he said.

“The vaccination program is ramping up and governments are providing significant targeted income support to help businesses and households get through this difficult period.

“This means that there is a pathway out of the current difficulties this year.”

Roughly 17 per cent of the Australian population are currently fully vaccinated, while around 34 per cent have received their first dose.

Mr Lowe said as a rule of thumb, household consumption in areas that are locked down is typically around 15 per cent lower than it would be otherwise.

“In addition, the lockdowns have directly affected construction activity in NSW and delayed some investment plans,” he said.

“Some increase in the unemployment rate is also expected over the months ahead, although most of the adjustment in the labour market is likely to be through declines in hours worked and participation, rather than in job losses.”

On the plus side, it’s possible that the Australian economy, as earlier this year, may enjoy a string of positive surprises, according to Mr Lowe.

“If we are successful in containing the virus over the months ahead, it is possible there will be stronger upswings in both investment and consumption than envisaged in our central scenario,” he said.

The central bank’s modelling has GDP growth to be a little over four per cent over 2022 and around 2.5 per cent over 2023. The unemployment rate is expected to resume its downward path, approaching 4 per cent by the end of 2023. 

This modelling, however, relies on the assumption that a “significant share” of the population is vaccinated by the end of this year, and the borders open gradually from mid-2022.

Uncertainty clouds the horizon with many variables containing the potential to throw the recovery off track.

“One source of uncertainty is the possibility of vaccine-resistant virus strains emerging over time,” Mr Lowe said

“Another is that it is still unclear what type of adjustments our society will have to make to live with COVID on an ongoing basis. Once vaccination rates are high enough, we will be living with a virus that is endemic rather than living through a pandemic.

“What this endemic phase looks like is still to be determined.”

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