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Free AccessMNI POLICY: RBA Sees Growth Recovery By Mid-2021, Jobs Worry
--Unemployment To Trough In June, Slow Pick-Up: RBA
By Lachlan Colquhoun
SYDNEY (MNI) - The Reserve Bank of Australia expects the economic impact of
the Covid-19 disruptions to peak in the second and third quarters of this year,
then improving in mid-2021, according to the quarterly Statement on Monetary
Policy published Friday.
The central bank sees GDP growth at -8% by end-June, with the economy
contracting 6% over the full year. Before the crisis, the RBA had seen 2020
growth at 2%,
Policymakers still expect a brisk recovery, with much of the lost GDP
recovered by mid-2021, helped by the outlook for a rapid return to operations in
China, a stable price for iron ore - Australia's largest export commodity, and
an easing of drought conditions.
Business investment is still expected to fall by 13% through December, with
household spending down 15% to the period to the end of June.
Unemployment is seen jumping to 10% by mid-year, up from 5.2% in March, and
the RBA expects high levels of joblessness to persist for some time, seeing only
marginal improvement later this year, to 9% by December, and 8.5% by mid-2020.
The rate would be significantly worse if not for the Federal Government's
A$130 billion JobKeeper program, which effectively pays employers to keep
workers on their books, the RBA noted.
In other key metrics, the RBA sees CPI inflation turning negative to -in
June, before coming back to 2.75% by June 2021 and then falling to 1.5% by Jun
2022.
"The inflation forecast takes into account the weak domestic demand
conditions but also the supply disruptions that will increase inflationary
pressures," the RBA Statement says.
"The deflationary effects from the spare capacity in the labour market and
in the economy more generally are expected to be the dominating influence."
The key to the economic recovery, the Bank says, remains the public health
measures to control the virus.
"A stronger economic recovery would be possible if further gains in
controlling the virus were achieved in the near term and most containment
measures were phased out over coming months," the statement says.
If there is a delay in the lifting of restrictions, with most remaining in
place until late this year with international travel resuming next year, then
the "outcomes would be even more challenging."
On interest rates, the statement says the RBA will not increase rates until
progress is made towards full employment and inflation is "sustainably" within
the 2% to 3% target band.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.