Has the Australian economy turned the corner on COVID-19?

Summary

• The Australian economy is now officially above its pre-pandemic state.
• The slow vaccination rollout can put Australia’s post-COVID-19 economic revival at risk.
• The central bank expects strong economic growth in Australia for the rest of this year and into 2022.

The Australian economy has undoubtedly experienced a strong rebound from the COVID-19 pandemic on the back of remarkable success in the virus battle. However, it will be interesting to watch whether the economy will be able to retain its growth charter throughout the rest of the year.

Unprecedented monetary support and massive stimulus packages unveiled since the onset of the coronavirus pandemic have seen the domestic economy recovering swiftly from the two-quarter technical recession. A part of the credit for this economic revival goes to the gradual easing of lockdowns and rollout of COVID-19 vaccinations, which paved the way for a return of normalcy in Australia.

The recent statistics revealed by the Australian Bureau of Statistics (ABS) show that the nation’s economy has returned to its pre-pandemic shape. As per ABS, the country’s economy grew by a better-than-expected rate of 1.1 per cent over the year to March 2021 quarter.

Related Read: Australia’s March quarter GDP rises 1.8%, beats estimates

Furthermore, Australia’s GDP grew at a rate of 1.8 per cent during the last quarter, surpassing market expectations of 1.6 per cent. The recent figures suggest that the country’s economic output has rebounded from the previous year’s bushfire crisis and early pandemic-driven fall.

Some analysts continued to express concerns over the impact of a potential withdrawal of government support. However, the economy shrugged off the end of JobKeeper wage subsidies as the nation recorded a significant fall in the April 2021 unemployment rate.

Interesting Read: Joblessness in Australia down to pre-pandemic levels

Despite a salvo of upbeat economic data indicating strong growth, the central bank continues to retain a dovish stance on monetary policy, setting the stage for a low-interest rate environment for the next few years. The global low interest rates regime is being blamed for creating inflationary pressures in the global economy. On that note, Australia appears to stand in a relatively better position where inflation levels remain subdued. This seems to have provided the central bank more room to run the domestic economy harder.

Do Not Miss: RBA holds fire on interest rate, flags low inflation

These bearish signs demand attention

Australia’s economic recovery from the pandemic has been robust compared to other major downturns in recent history. However, one need not neglect the heightened risks from fresh virus outbreaks seen across some parts of the world, like India. The most recent coronavirus outbreak in Melbourne reinforces this view. Furthermore, the slow vaccination rollout can put the nation’s post-coronavirus economic revival at risk, leaving the nation in a precarious position.

Also Read: Victoria enforces fourth lockdown as COVID-19 cases spike

Given this backdrop, the current scenario calls for an acceleration in the pace of the vaccination campaign. Countering mounting vaccine hesitancy and confusion about a mass inoculation program needs to be looked at.  Without widespread vaccination, the Australian economy remains vulnerable to a massive virus outbreak and resultant restrictions, which could crimp economic growth in the months ahead.

Recently, the Organisation for Economic Co-operation and Development (OECD) has also warned that the Australian economy’s robust recovery from the pandemic recession could be undermined in the absence of a fast vaccine rollout to avert fresh coronavirus outbreaks.

However, the Reserve Bank of Australia’s (RBA) foresees strong economic growth for the rest of this year and into 2022. The central bank expects the nation’s economy to grow as Aussies are vaccinated. In the central scenario, the RBA anticipates the GDP to grow by 4.75 per cent over 2021 and 3.5 per cent over 2022 on the back of accommodative financial conditions and robust fiscal measures.

Good Read: Economic Charter: Check out latest developments and further expectations