While Australia has all but narrowly avoided a technical double-dip recession, the near-term outlook remains weak, with the September quarter tipped to reveal the real damage of lockdown.
Official figures released by the ABS on Wednesday showed GDP surprised markets on the upside, growing by 0.7 per cent mainly off stronger-than-expected farming stocks, a strong rise in dwelling investments and public spending as confidence gained a boost on the speedier than predicted vaccine roll-out.
As such, the June quarter saw a substantial lift in GDP when compared to the lockdown-depressed June quarter last year.
While solid GDP figures for June are set to save Australia from a “double dip recession”, Janus Henderson’s investment strategist Frank Uhlenbruch noted it is simply “Groundhog Day” with the economic damage from the lockdowns merely swept under the rug and due to resurface next quarter.
“The economy will contract sharply in the September quarter, with both NSW and Victoria locked down and the fall in the level of activity occurring then,” he said.
Reaffirming this is AMP Capital’s Dr Shane Oliver who is now predicting Australia will avoid a technical recession, but believes the September quarter will certainly be negative.
“Our rough estimate is that the lockdowns since late May are costing the economy around $25bn in lost output and will result in a 4 per cent fall in September quarter GDP,” Dr Oliver said.
“And of course, there is the psychological cost of lockdowns too.”
However, both market analysts are predicting the economic damage to be limited to the near-term, with vaccine rates likely to pass 70 to 80 per cent by the mid-December quarter and pent-up demand expected to spur the economy on.
“Our view is the economy will be back at June quarter 2021 levels by the March quarter 2022 and that economic growth over 2022 will be stronger and less volatile than 2021,” Mr Uhlenbruch stated.
Dr Oliver caveats his bullish response on the market, opining that Australia will exit lockdown in a different position than it found itself in last year, with Aussies now required to get used to living with the virus, which may act as a constraint on confidence.
“Even when reopening comes as vaccination targets are met it will be very different to last year’s reopening. That occurred when coronavirus cases had fallen to around zero, but this time coronavirus cases are likely to be running much higher,” he said.
Looking forward, Dr Oliver believes Australia will gradually reopen starting from October, gathering pace later in the year and early next year, with the recovery starting to get back on track by 2022.
“While growth though this year is likely to be just 1 per cent (compared to our expectation for 4.8 per cent three months ago), it’s likely to be around 6.5 per cent through next year,” Dr Oliver concluded.
