While the warp-speed development of several COVID-19 vaccines is good news for the economy, the outcome of its roll-out is not assured because there is “still quite a way to go” in repairing the damage of the pandemic.
“The global rollout of the vaccines faces challenges and there are a range of other uncertainties about the global economy, including trade tensions. We hope for the best here, but we also need to be prepared for further setbacks in what remains a highly uncertain world,” RBA governor Philip Lowe told the National Press Club on Thursday.
The RBA’s central scenario for the economic recovery sees above-average growth over the next few years, with GDP expected to increase by 3.5 per cent in both 2021 and 2022. GDP is expected to return to its end-2019 level by the middle of the year – six to 12 months earlier than the RBA previously expected. However, low population growth (0.2 per cent compared to forecasts of 1.6 a year ago) is expected to keep GDP depressed and Australia will not return to trend “any time soon”.
Aggregate household income is also expected to decline as fiscal stimulus unwinds – but consumption is expected to remain steady as households and businesses spend the money saved as a result of COVID-19 health restrictions and border closures.
“But there are risks to the forecasts in both directions here. On the downside, further bad news on the health front could see additional restrictions on activity and a renewed desire to save. And on the upside, positive news on health and jobs could see people seek to catch up on spending and run down their extra saving buffers quickly. So we are watching this area carefully,” he said.
Governor Lowe also conceded that the RBA remained “well short” of its mandate to wrangle inflation and achieve full employment, as evidenced by the central bank’s decision to launch a massive expansion of its quantitative easing program at its 2 February meeting.
“Very significant monetary support will need to be maintained for some time to come. It is going to be some years before the goals for inflation and unemployment are achieved. So it is premature to be considering withdrawal of the monetary stimulus,” Governor Lowe said.
