Reserve Bank governor Philip Lowe no longer expects unemployment to hit 10 per cent and says it’s more likely to peak below 8.
Speaking before parliament’s Standing Committee on Economics on Wednesday morning, Dr Lowe said the immediate recovery from the coronavirus recession had been stronger than he expected three months ago.
Dr Lowe said he now expects the national accounts to show quarterly growth of at least 2 per cent in the September quarter and unemployment to peak below 8 per cent.
The bank had previously forecast unemployment to reach 10 per cent by the end of the year.
“So there has been an upgrade to our outlook,” Dr Lowe said.
“It’s not changed in the medium term, but the bounce back has been quicker than we’d hoped, and if we get good news on the vaccine, then I think we could look forward to that continuing.”
Dr Lowe added, however, that “even with the overall economy now growing solidly, it will not be until the end of 2021 that we again reach the level of output recorded at the end of 2019”.
The governor said the bank expects the unemployment rate will remain above 6 per cent in two years’ time and will consequently put downward pressure on annual wages growth, which is expected to stay below 2 per cent in each of the next two years.
That is the bank’s central scenario, though Dr Lowe said it “does not envisage a vaccine being widely available to most Australians until late next year at the earliest”.
“It also assumes that significant restrictions on international travel are still in place at the end of 2021,” he said.
“Recent medical breakthroughs give us some hope that things will work out better than this.
“If so, confidence would lift and there would be a further easing of restrictions.
“The result would be an upside surprise to growth and jobs, especially given the significant policy stimulus that is already in place, the generally strong balance sheets, and the substantial government incentives for businesses to employ people and invest.”
Dr Lowe’s comments come after the bank convened its last monetary policy meeting of the year on Tuesday.
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 in a statement that 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 Australian Bureau of Statistics will release GDP figures for the September quarter at 11.30am on Wednesday.
Economists expect quarterly growth of roughly 2.5 per cent, after a record contraction of 7 per cent in the June quarter.