The Reserve Bank of Australia has warned the recovery from the expected economic downturn in the September quarter could be slower than previously experienced during the COVID-19 pandemic.
In the minutes of its September 7 board meeting, the RBA says it was possible precautionary behaviour by households and firms after lengthy lockdowns would contribute to a slower rebound.
In a recent speech, RBA governor Philip Lowe said the economic contraction could be at least two per cent in the September quarter as a result of virus lockdowns in the nation’s two major states, NSW and Victoria.
Economists expect the downturn could be as large as four per cent.
Even so, members of the RBA board expect as vaccination coverage increases, this will allow restrictions to be eased and the recovery to begin in the December quarter.
“In the central scenario, activity was expected to return to its pre-Delta path in the second half of 2022, with the health situation the key source of uncertainty around this scenario,” the minutes released on Tuesday say.
“Consistent with the effect of the lockdowns on activity, members assessed that further improvement in the labour market would be delayed.”
Figures released last week showed employment dropped by a hefty 146,300 jobs in August as a result of the lockdowns.
Video: Analyst looks at Victoria’s latest COVID numbers (ABC NEWS)
“The board remains committed to maintaining highly supportive monetary conditions to achieve a return to full employment in Australia and inflation consistent with the target,” the minutes say.
The central bank reiterated it would not increase the cash rate until actual inflation is sustainably within the two to three per cent per cent target range, a condition it does not expect to be met before 2024.
Last week’s job figures weighed heavily on consumer confidence in NSW and Victoria.
While the weekly ANZ-Roy Morgan consumer confidence index barely moved nationally, up just 0.2 per cent, sentiment tumbled 4.9 per cent in NSW and by 1.1 per cent in Victoria.
In contrast, confidence – a pointer to future household spending – jumped 7.3 per cent in Queensland and 6.7 per cent in South Australia.
“Falling COVID case numbers in NSW, plus Victoria’s plan for opening may boost confidence over the coming week,” ANZ head of Australian economics David Plank said.
The latest survey was taken at the weekend, so it would not have gained the full impact of the Victorian government’s lockdown exit plan announced on Sunday afternoon.
However, rising petrol prices appear to fuelling consumers concerns about the inflation outlook.
The survey’s inflation expectations component rose 0.2 per cent and back to a near three-year high of 4.7 per cent seen earlier this month.
The national average for petrol prices struck a 35-month high last week against the backdrop of rising international oil prices.Internet Explorer Channel Network