Westpac chief economist Bill Evans this week urged the Reserve Bank to back away from plans to reduce the pace of its bond buying program and instead up the tempo, warning the economy faced a deeper than expected contraction from the Greater Sydney lockdown and needed ongoing support.
Ominously for Sydneysiders already struggling through five weeks of stay-at-home restrictions, Mr Evans’ revised forecasts are based on the assumption the lockdown runs until September 30, a month longer than the government’s plan and his prior expectation it would end on August 20.
As such, he said the NSW economy would now contract 7.8 per cent in the September quarter, dragging national GDP down 2.2 per cent, as the construction sector operates at only 60 per cent capacity from August 1 until the end of the lockdown.
The impact on jobs was likely to be large, Mr Evans predicting national employment to contract by about 200,000 jobs in the September quarter.
“Case numbers have increased rapidly and it is clear that the lockdown will last much longer than we had anticipated,” he said yesterday, as the state recorded 239 COVID cases, its highest of the outbreak.
However, similar to when prior lockdowns have lifted, he expects a strong bounce back, NSW tipped to surge 5.8 per cent in the December quarter and the national economy 3 per cent. The jobs market will partially recover, employment lifting 185,000 in the December quarter.
It comes as several economists downgrade their near-term forecasts and mull how the RBA will respond at its monthly board meeting next week.
Mr Evans said given the blow to the economy and jobs from the lockdown, the RBA should provide more support and defer the planned tapering of its bond buying program, or “quantitative easing”, to $4 billion a week from $5bn and instead immediately increase it to $6bn a week.
He said no “reasonable person” would interpret the move as “panic” from the RBA and while the lift in purchases may make little actual difference a modest increase in purchases will further add to the stock of bonds “and the stimulus” provided to the economy.
“Given the sharp unexpected deterioration in the economy the RBA Board should send a clear signal that it continues to be committed to supporting the Australian economy with an immediate increase in its weekly bond purchases,” he said.