Lowe to talk up economy’s post-pandemic recovery as clouds grow

Lowe to talk up economy’s post-pandemic recovery as clouds grow

09/13/2021

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Reserve Bank governor Philip Lowe will use a major address to talk up the strength of the economy in the face of extended pandemic lockdowns amid growing concerns the recovery could be up-ended without extremely high COVID-19 vaccination rates.

Ahead of figures that will confirm the hit to the jobs market caused by the NSW, Victorian and ACT lockdowns, Dr Lowe will tell the annual Anika Foundation address in Sydney on Tuesday that while the Delta outbreak is causing immediate economic pain, it will pass.

RBA governor Philip Lowe is expected to use a speech on Tuesday to talk up the country’s post-pandemic economic performance.Credit:Dominic Lorrimer

Last week, Dr Lowe said the current lockdown would be a temporary economic setback, adding it would “delay but not derail” the recovery. While parts of the country were facing very difficult conditions, others were still growing strongly.

He made the comments after the RBA decided to continue with its plan to gradually wind back its $5 billion-a-week quantitative easing program. But while reducing government debt purchases to $4 billion a week, the bank also extended the program until mid-February.

The bank is expecting the economy to expand by 4 per cent this year and then another 4.25 per cent through 2022. Those forecasts, however, pre-date the tightening of restrictions across NSW and the lockdowns that have hit Victoria and the ACT.

Westpac chief economist Bill Evans, who is forecasting the economy to contract by 4 per cent in the September quarter before growing by 1.6 per cent in the December quarter, said Australia’s vaccination rate was a growing risk.

He said evidence from overseas showed even a vaccination rate of 80 per cent of the eligible population, Australia’s stated target before reopening the economy, would put pressure on hospitals and the overall health system.

In the case of Australia, that meant millions of unvaccinated people.

“If Australia fails to reach a vaccination rate well above 80 per cent in 2022 or more dangerous variants of the virus emerge, then the buoyant prospects for a very strong bounceback in the Australian economy may fade,” he said.

This week, official employment figures are expected to show the disappearance of up to 70,000 jobs due to the impact of lockdowns on the labour market. The unemployment rate, which fell to 4.6 per cent in August, is tipped to rise back over 5 per cent.

Property prices are climbing at a near 20 per cent annualised rate in many capital cities, driven up by low interest rates.

Dr Lowe is expected to use his speech to touch on both the long-term impact of the pandemic on the jobs market as well as the nation’s hot property market.

Sydney’s median house price is now $1.3 million, up by more than $300,000 over the past 12 months, while in Melbourne, it has climbed by $157,000 to $955,000.

Data from CoreLogic shows that through the first 12 days of September, the value of dwellings across Sydney has climbed 0.8 per cent while in Melbourne, it’s increased 0.3 per cent.

Despite the sharp lift in prices and average mortgage sizes, key measures of household debt have been held down, in large part due to the RBA’s ultra-low interest rate settings. The cash rate is at 0.1 per cent with the RBA saying it expects it to remain at that level into 2024.

But CoreLogic’s head of research, Tim Lawless, on Monday said it appeared the surge in prices, coupled with slow wages growth, would start to push up debt levels.

“Considering the pace of growth in housing credit against a backdrop of soft income growth, in all likelihood, household debt will be at or close to record highs by the end of 2021,” he said.

The ratio of owner-occupier debt to annualised household income is now at a record 100 per cent. Offsetting that has been the surge in house prices, which has pushed the ratio of household assets to household disposable income to a record high of 1045 per cent.

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