Invest
The economic recovery could be slower than first anticipated
The Reserve Bank of Australia has warned that the economic recovery from the COVID-19 pandemic remains uncertain, with its latest figures being worse than those predicted three months earlier.
The economic recovery could be slower than first anticipated
The Reserve Bank of Australia has warned that the economic recovery from the COVID-19 pandemic remains uncertain, with its latest figures being worse than those predicted three months earlier.
In its monthly monetary policy update, RBA assistant governor Luci Ellis outlined three scenarios that the economy could take depending on how quickly the virus is contained and restrictions lifted.
All three scenarios – baseline, an upside and a downside – will see Australia’s unemployment rise and its GDP fall, but the levels change based on the health outcome.
The three scenarios all assume international borders will remain closed and travel will be restricted until the middle of next year.
The RBA’s new baseline scenario isn’t what one would normally consider optimistic, with unemployment expected to soar to almost 10 per cent by the end of the year, a figure that would be unthinkable at the start of the year.
“The situation in Victoria will reduce growth in the September quarter and push out the recovery beyond that,” said Ms Ellis. “That said, activity is expected to continue to recover in much of the country over the rest of this year and next. The recovery is expected to be slow and uneven, and GDP will probably take several years to return to the trend path expected prior to the virus outbreak.”
This will also see the June 2021 growth forecast be reduced by 4 per cent from a 7 per cent previously forecasted.
Business investment is also expected to be worse than originally forecasted, falling 17 per cent this year, with the May forecast suggesting a 13 per cent reduction.
The RBA continues to rely on a vaccine or a medical breakthrough to achieve its upside scenario as it would see the national economy bounce back harder than first predicted.
“An effective vaccine would take a bit longer to be distributed, so it would mainly affect outcomes next year and the year after. But it could also result in a stronger recovery than we have assumed even in the upside scenario presented here. A worse outcome than our downside could be conceivable if the virus cannot be contained and further waves of infection occur around the world for some years yet,” Ms Ellis said.
“If the lifting of restrictions is delayed, the restrictions need to be reimposed or household and business confidence remains low, the outcomes would be even more challenging than those in the baseline scenario,” reads the RBA’s May statement on monetary policy. “For this scenario, we assume that many restrictions remain in place until closer to the end of 2020 and international travel restrictions are in place well into next year.”
The upside scenario also assumes that infection rates fall quickly and stay low. The pace of decline in case numbers is assumed to be a bit faster than in the baseline, so the restrictions are eased a bit faster. This would be similar to the experience of some of the smaller states in recent months.
The RBA also predicted that the economy could follow Victoria’s stage 4 lockdowns, with its downside prediction noting further restrictions and barriers to an economic recovery.
“Australia itself faces a series of outbreaks and periods of stage 3 or 4 restrictions in some states. The result is further near-term weakness in activity. Confidence is damaged and so the recovery is much slower as well. The extent of the damage would depend on how widespread and long-lasting renewed restrictions need to be to get control over the spread of the virus,” Ms Ellis said.
RELATED ARTICLES
About the author
About the author
Economy
Australian and Korean leaders meet to unlock billions in new trade opportunities
In a significant effort to bolster economic ties and explore new avenues for investment, Australian and Korean leaders, alongside business executives and government officials, are gathering in Seoul ...Read more
Economy
Australia’s growth beat is real — but it’s the wrong kind for capacity
Australia’s economy outpaced forecasts in the June quarter as households opened wallets and government spending did the heavy lifting, even as public investment sagged. The signal for boardrooms: ...Read more
Economy
Australia’s growth is back—but it’s the wrong kind of strong
GDP surprised on the upside in the June quarter, powered by households and government outlays even as public investment slumped. The Reserve Bank stayed hawkish, signalling that sticky services ...Read more
Economy
Australia's Economic Resilience: Strong GDP growth challenges RBA's policy stance
In a surprising turn of events, Australia's economy has shown greater resilience than anticipated, with the latest Q2 GDP report revealing a stronger performance largely driven by vigorous household ...Read more
Economy
Economist calls for July RBA rate cut following inflation data
An economist from State Street Global Advisors has called for the Reserve Bank of Australia to cut interest rates in July following today's Consumer Price Index data for June. Read more
Economy
GDP data prompts economist to predict faster RBA rate cuts
Australia's latest GDP growth data has come in significantly below expectations, prompting an economist to suggest the Reserve Bank may need to ease monetary policy more aggressively. Read more
Economy
Global markets face turbulent start amid tariff concerns, but outlook remains cautious
Global equity and bond markets have experienced a turbulent start to 2025, primarily due to concerns that a potential tariff-driven trade war could heighten inflation and recession risks. Read more
Economy
RBA may cut rates faster if GDP data disappoints, economists say
The Reserve Bank of Australia may cut interest rates more quickly if next week's GDP data disappoints, economists said following today's consumer price index data for May. Read more
Economy
Australian and Korean leaders meet to unlock billions in new trade opportunities
In a significant effort to bolster economic ties and explore new avenues for investment, Australian and Korean leaders, alongside business executives and government officials, are gathering in Seoul ...Read more
Economy
Australia’s growth beat is real — but it’s the wrong kind for capacity
Australia’s economy outpaced forecasts in the June quarter as households opened wallets and government spending did the heavy lifting, even as public investment sagged. The signal for boardrooms: ...Read more
Economy
Australia’s growth is back—but it’s the wrong kind of strong
GDP surprised on the upside in the June quarter, powered by households and government outlays even as public investment slumped. The Reserve Bank stayed hawkish, signalling that sticky services ...Read more
Economy
Australia's Economic Resilience: Strong GDP growth challenges RBA's policy stance
In a surprising turn of events, Australia's economy has shown greater resilience than anticipated, with the latest Q2 GDP report revealing a stronger performance largely driven by vigorous household ...Read more
Economy
Economist calls for July RBA rate cut following inflation data
An economist from State Street Global Advisors has called for the Reserve Bank of Australia to cut interest rates in July following today's Consumer Price Index data for June. Read more
Economy
GDP data prompts economist to predict faster RBA rate cuts
Australia's latest GDP growth data has come in significantly below expectations, prompting an economist to suggest the Reserve Bank may need to ease monetary policy more aggressively. Read more
Economy
Global markets face turbulent start amid tariff concerns, but outlook remains cautious
Global equity and bond markets have experienced a turbulent start to 2025, primarily due to concerns that a potential tariff-driven trade war could heighten inflation and recession risks. Read more
Economy
RBA may cut rates faster if GDP data disappoints, economists say
The Reserve Bank of Australia may cut interest rates more quickly if next week's GDP data disappoints, economists said following today's consumer price index data for May. Read more
