Australia’s economic recovery is under way and recent data has been better than expected, according to the Reserve Bank.
“This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support,” RBA governor Philip Lowe said in a statement after the bank’s last monetary policy meeting of the year.
Dr Lowe said it will not be until the end of 2021 that the economy reaches the same size it had attained at the end of 2019.
As was widely expected, the board held the official cash rate at 0.1 per cent and maintained the same policy settings for its bank lending and government bond-buying programs.
Dr Lowe said the economic recoveries in Europe and the United States had “lost momentum” as a result of sharply rising coronavirus infection rates, with hours worked in most countries remaining “noticeably below pre-pandemic levels”.
But he said the economic recovery in Australia was under way and “recent data have generally been better than expected”.
“In the central scenario, GDP is expected to grow by around 5 per cent next year and 4 per cent over 2022,” Dr Lowe said.
The governor’s comments come before the release of the national accounts on Wednesday morning.
Most economists expect they will show the national economy expanded over the September quarter – which would be the first quarter of economic growth this year – after the economy contracted by a record 7 per cent in the three months to June 30.
Based on the popular definition of a recession as two or more consecutive quarters of negative growth, a positive GDP result on Wednesday would mark the end of the nation’s recession on paper.
But in reality the recession will be keenly felt for years.
Economists at Deloitte Access Economics, for example, predict the unemployment rate will remain above pre-pandemic levels until at least 2024.
And the Grattan Institute has shown that, based on the current level of government support, it will take longer for unemployed Australians to find jobs during this recession than most recessions in Australian history.
“To be clear, Australia still has a long way to go on the path to recovery. And that recovery will be highly uneven,” Indeed APAC economist Callam Pickering said after the RBA’s meeting.
“Jobs are returning, but they aren’t necessarily the high-quality, full-time jobs that were lost early in the crisis.”
Commonwealth Bank head of Australian economics Gareth Aird, however, said “it’s worth remembering that GDP is backward looking”.
His team is forecasting a strong economic rebound in 2021.
“Things are moving quickly and whilst the [September quarter] GDP data is important, at this juncture financial markets are more interested in what the strength and duration of the economic recovery will look like in 2021 and beyond. On that score we are optimistic,” he said in a note.
“There is plenty of evidence in the forward-looking data that signals strong outcomes next year are more likely than not.”