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Vaccine no 'silver bullet' for economic recovery, RBA says
While Australia is said to have "overachieved" on the COVID-19 pandemic so far, the RBA governor has stressed that it will need to continue to suppress the virus and lift consumer spending in order to stimulate economic recovery.
Vaccine no 'silver bullet' for economic recovery, RBA says
While Australia is said to have "overachieved" on the COVID-19 pandemic so far, the RBA governor has stressed that it will need to continue to suppress the virus and lift consumer spending in order to stimulate economic recovery.
RBA governor Philip Lowe used his time at the National Press Club to highlight Australia’s achievements economically, with the current unemployment rate of 6.6 per cent outperforming the bank’s most optimistic predictions.
“Our upside scenario, the unemployment rate was expected to end 2020 a little lower than 10 per cent, but still be around 7 per cent later this year. Thankfully, the actual outcome for the unemployment rate has been much better than this,” Dr Lowe said.
While confirming the economy is in a better position than expected, Dr Lowe pointed out that Australia still has a long way to go, with unemployment remaining higher than pre-pandemic levels.
“There is still very substantial spare capacity in the Australian economy. The unemployment rate is higher today than it has been for almost two decades, and many people can’t get the hours of work they want,” Dr Lowe said.
He said that while there will be a contraction in consumers’ income due to government support being withdrawn, Australia will still benefit from an increase in consumer spending.
“Normally, when income falls, so too does consumption. But we are not in normal times,” Dr Lowe said.
“The extra savings over the past six months and the bigger financial buffers can support future spending – people will have more freedom to spend as restrictions are eased and be more willing to spend as uncertainty recedes. So, we are expecting the recovery in consumer spending to continue.”
Overall, the RBA is predicting above-average growth over the next few years, with GDP expected to increase by 3.5 per cent in both 2021 and 2022.
GDP is expected to return to its end-2019 level by the middle of the year – six to 12 months earlier than the RBA previously expected.
Dr Lowe said this is despite lower population growth and a high unemployment rate.
The governor told the media that the COVID-19 vaccine is good news for the economy, but there is still quite a way to go in repairing the damage of the pandemic.
“It has reduced one of the big uncertainties and could provide the foundation for a vigorous and sustainable recovery in the global economy,” Dr Lowe said.
He added, however, that the vaccine is not a silver bullet for the economy, with the outcome of its rollout not assured.
“The global rollout of the vaccines faces challenges, and there are a range of other uncertainties about the global economy, including trade tensions. We hope for the best here, but we also need to be prepared for further setbacks in what remains a highly uncertain world,” Dr Lowe concluded.
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