• Deputy Governor Guy Debelle told a Senate estimates hearing that September quarter could be a positive quarter for the Australian economy.
• The central bank is expected to reveal its latest monetary policy plansearly next month along with a new forecast for the economy.
Australia’s first recession in nearly 30 years could already be over, the Reserve Bank has suggested. Speaking at Senate estimates hearing, the Reserve Bank of Australia’s Deputy Governor Guy Debellestated that Australia might have recorded a positive period in the September quarter.
Technically speaking, twoquarters of consecutive contractions constitute a recession. If Australia probably recorded expansion in the September quarter, the country would be out of recession technically.
From a comparison perspective, Australia was successful in taming the initial wave of the pandemic more effectively compared to other developed nations in the west and Europe. This was in part driven by the steps taken by Australian policymakers.
Australian policy implementation machinery has emphasised strongly on testing, tracing, and isolation.
International travel was bannedfrom affected countries, and isolation was imposed on people flying in from COVID-19 infected jurisdictions. Geographical benefits, like less population density, also benefitted the country.
Although most of the states were successful in limiting the spread of virus exponentially, Victoria entered hard lockdowns in July once again after rising new cases.
The hard lockdown measures in Victoria imposed by the State Government addto the downside risks to the September quarter GDP print. Individual states have been relaxing pandemic restrictions as early as late April in the country.
Even in the June quarter, which saw detrimental consequences for most countries in the world, Australian started loosening the restrictions. This situation in the country later translated to ‘better than expected’ outcomes.
Team Australia moment and next RBA meeting
During this challenging period, the Federal Government has been effective in mobilising and synergising public resources.
The team Australia moment was evident amongstthe Australian Treasury, Reserve Bank of Australia (RBA), Australian Prudential Regulation Authority (APRA), and the Australian Securities and Investments Commission (ASIC).
The RBA is set to release its updated forecast for the economy next month at the monetary policy decision meeting. Australian policymakers had a long ride with no recession in the last 29 years until June quarter GDP print was released.
In the June quarter, the economy was down by 7% following a marginal contraction of 0.3% in the March quarter. One month from now, the RBA forecast would only serve as a mere indicator based on the data and assumptions of the past.
Moreover, forecasting is not very efficient during uncertain times like we have now, where variables continue to fluctuate and remain volatile. For instance, who could have thought in May that Victoria would see a damaging second wave?
As new data comes to limelight, the chances of alterations to previous forecasts are highly likely.
Assistant Governor Michele Bullock has recently released a paper on financial stability. The paper basically concluded noting that the upcoming months are likely to witness stress of bankruptcies and insolvencies.
She also said that Australian banks are well capitalised to support the economy with prudent capital management standards, which are enforced by APRA.