On August 16, when we released our most recent set of forecasts, NSW reported 478 COVID-19 cases while Victoria announced 22 new cases.
On Friday, NSW reported 1431 new cases and Victoria reported 208.
Clearly, the situation has deteriorated substantially in Australia’s two most populous states, with it becoming increasingly clear that extensions to Victoria’s lockdown would be necessary. That guidance came last week with Premier Andrews abandoning the zero cases target in favour of a vaccination target.
As such, on Friday we lowered our forecast for GDP growth in the September quarter from –2.6 per cent to –4.0 per cent.
We also lowered our growth forecast in the December quarter from 2.6 per cent to 1.6 per cent.
For 2021, we now expect zero growth, down from our prior forecast of 2.4 per cent growth, and we increased our forecast for 2022 from 5 per cent to 7.4 per cent growth.
With a strong recovery expected in 2022 we have retained our target unemployment rate of 4 per cent by end 2022, albeit have lifted our near-term expectations for December to 5.4 per cent, up from 4.9 per cent in our earlier forecast.
The early stages of the recovery are now expected to be much more restrained than earlier expected as state borders remain closed and the NSW and Victorian governments, despite achieving the 80 per cent vaccination targets, are cautious about overwhelming already stretched hospital systems in the early stages of a reopening given expected ongoing heavy case loads.
But as we move into 2022 when the nation is set to reach 80 per cent vaccination (16 and above, with the 1.2 million children in the 12–15 age groups also rising quickly) and likely to move to 90 per cent (surveys show that only around 10 per cent of the population are opposed to vaccination) allowing the economy to recover quickly.
That will be underpinned by a large boost in federal government stimulus as the federal election draws near; the reopening of NSW and Victoria after a “slow start” in the December quarter of 2021; a strong household balance sheet (household savings rate likely to start the year well above 10 per cent); the reopening of all borders including the foreign border (by mid-year); a booming housing market and a strong world economy.
It is worth noting the 9.6 per cent growth rate in the Australian economy in the year to June 2021, as printed in this week’s national accounts, reflected the benefits of the previous reopening. In that context our 7.4 per cent for 2022 seems achievable.
However, it must be recognised that our 7.4 per cent recovery pace in 2022 carries much more uncertainty than is usually the case where risks are typically dominated by the more familiar policy risk; structural imbalances and the global outlook.
As the past few months have reminded, the situation can change very quickly.
A recent report in the Australian Financial Review perhaps best summarises the power of full vaccination, recently quoting statistics from NSW Health that in the four weeks to August 14 of the 6480 positive cases reported in NSW, only 2.7 per cent were fully vaccinated, compared to around 30 per cent fully vaccinated.
That bodes well for a far better 2022 for the economy and communities than 2021.
Read more at Westpac IQ.
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