VIEW: NSW Lockdown Pushes CBA's Cash Rate Hike Call Further Out

CBA note that they "expect the Australian economy to contract by 2.7% over Q321, following a forecast 0.6% increase in Q221. A meaningful rebound in production is not expected until November; we forecast a lift in GDP of 1.9% in Q421. Employment will decline significantly over the next few months because of the lockdown in Greater Sydney - we expect a fall in employment of ~300k in NSW with the bulk of the job losses showing up in the August labour force survey. Unemployment will rise more modestly than the fall in employment would suggest as the vast majority of people who are stood down in NSW will exit the labour force temporarily, as was the case last year. Our forecast is for the unemployment rate to peak at 5.6% in October 2021 and to be 5.2% at end‑2021. We retain our view that economic outcomes will be very strong next year and forecast GDP growth of 3.3% in 2022 (following a 3.6% increase in 2021) and the unemployment rate to be 4.5% at end‑2022. We push out our call for the RBA to commence normalising the cash rate to May 2023 (from November 2022 previously). We expect the RBA to delay the already announced taper of its bond buying program until February 2022 and see them continuing to purchase bonds at a pace of $A5bn per week until then."