The reintroduction of lockdown measures in Victoria will impact around a quarter of national output and weaken the country’s near-term growth profile, Janus Henderson has warned.
On Sunday, Melbourne moved to stage 4 restrictions with stronger rules including an 8pm curfew and limits on travelling, outdoor exercise and shopping within the city. The state detected 671 new COVID-19 cases on Saturday.
On Monday, state premier Daniel Andrews confirmed a number of businesses primarily in metropolitan Melbourne would be set to close, including financial asset investing, insurance and superannuation funds, and auxiliary finance and insurance services.
Only bank branches will be permitted to operate under the new lockdown, as well as “critical banking services” to support the provision of services, and credit and payment facilities.
In an economic analysis and market outlook, Frank Uhlenbruch, investment strategist in the Janus Henderson Australian fixed interest segment, has cautioned despite bond yield and the labour market beginning to heal, the stricter measures in Victoria will weaken short-term growth in Australia.
Further, the fund manager suspects Treasury’s forecasts for the economy, to fall by 3.75 per cent over 2020 in its latest economic and fiscal update may “prove to be too optimistic”.
“Victoria, which despite an initial greater Melbourne lockdown, shows no sign of slowing and appears to be spreading into other eastern states,” Mr Uhlenbruch wrote.
“We look for growth to fall by up to 5 per cent over 2020, with the economy contracting in the March, June and September quarters, with the largest falls in the June quarter.
“Economic growth is expected to rebound from the December quarter with the [government’s] decision to extend income support, albeit at a reduced rate until the end of March 2021, shoring up the outlook by fading the rate at which fiscal support is reduced. Stronger and wider lockdown measures will delay and flatten the rate of recovery and likely require more fiscal support.”
As progress towards a vaccine has continued, the nearer term outlook remains highly uncertain.
According to Mr Uhlenbruch, fiscal policy will remain best placed to target support to individuals and industries.
“While the RBA has indicated that it is content with the current level of monetary accommodation, an extension of forward guidance or yield curve control measures remain policy options to support fiscal measures if needed,” he said.
“Cyclical and structural factors continue to point to a low rate regime that should persist for many years and see income-producing assets bid. The two preconditions for an RBA rate rise remain a return towards full employment and inflation returning on a sustainable basis to the 2 per cent to 3 per cent target band.
“We see neither of these preconditions being met for several years given the amount of spare capacity in the economy.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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