Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
The Reserve Bank of Australia has warned the economic recovery once COVID-19 restrictions ease in the nation’s two largest states could be slower than previously experienced during the 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.
New consumer confidence data – a measure of future household spending – also released on Tuesday indicates the mood among Sydneysiders and Melburnians has deteriorated with virus cases remaining elevated.
In a recent speech, RBA governor Philip Lowe said he expects economy to contract by at least two per cent in the September quarter as a result of virus lockdowns 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.
“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,” the minutes 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.
“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.
“Extended lockdowns in Sydney, Melbourne and Canberra have delayed the RBA’s policy efforts to reduce the unemployment rate towards four per cent, which could spur wage gains of around three per cent, and sustainably propel inflation into its target range,” Commonwealth Securities senior economist Ryan Felsman said.
The weekly ANZ-Roy Morgan consumer confidence index barely moved nationally, up just 0.2 per cent, but 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.
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.