Australia’s economy on a ‘road to recovery’, says RBA’s Lowe

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Australia’s success in controlling the coronavirus has put the economy on a “road to recovery”, the country’s central bank governor said on Monday even as a new outbreak of COVID-19 threatens to darken the outlook.

Reserve Bank of Australia (RBA) Governor Philip Lowe hailed recent better-than-expected data on employment, retail sales, housing, consumer sentiment and business confidence saying the early easing of restrictions has “lifted spirits.”

“There is a lot of stimulus in the system, balance sheets are generally in good shape and governments are providing substantial incentives for firms to invest and employ people,” Lowe said at a dinner event in Sydney.

“So if we do get further good news on the health front, we could have a rapid rebound.”

Clouding the outlook though, South Australia announced a raft of coronavirus restrictions on Monday, including shutting down gyms and community centres to help curb a new outbreak in the state.

Australia eased most of its virus restrictions in May having curbed the spread of the virulent disease, though the second-most populous state of Victoria relapsed into a strict lockdown soon after. Victoria relaxed rules only this month.

While suffering nearly 28,000 cases, Australia has been among the countries most successful in combatting the spread of the disease, and the swift delivery of fiscal and monetary stimulus have helped the economy fare better than many of its peers among the world’s richer nations.

Earlier this month, the Reserve Bank of Australia (RBA) upgraded its forecasts for near-term economic activity, expecting growth of 5% next year and 4% over 2022.

The RBA this month also trimmed its cash rate by 15 basis points to 0.1% and launched a A$100 billion quantitative easing programme targetting long-dated bonds.

Lowe said it would still take until the end of 2021 for the country to return to the level of output posted at the end of 2019.

The labour market was the biggest victim of the downturn, with the unemployment rate expected to rise over coming months to near 8% from under 7% now.

It seems “highly probable that one of the marks the pandemic will leave is an extended period of higher unemployment than we have become used to,” Lowe noted.

“Addressing this is an important national priority.”