Will this Christmas bring back the season of joy for Australia?

Highlights

• Vaccinations are picking up pace in Australia.
• Businesses are gearing for the economies opening up and the demand surging during the festive season.
• Expectations for the September quarter are gloomy, but experts opine recovery to pick up pace from the December quarter and run into the following year.

A month ago, Philip Lowe, Governor of the Reserve Bank of Australia, expressed that there would be steep dips in the quarter ending 30 September. Still, economic activities is expected to help rebound in the Christmas quarter.

The background

Since the Covid 19 virus hit economies in early 2020, there was massive turmoil, and no economy was spared. However, Australia managed things rather well and was roaring back towards recovery when the Delta variant wreaked havoc and swept the nation into strict lockdowns. Obviously, economic activity was badly hit. In fact, the country was threatened by the risk of recession.

However, thankfully, the ABS release on 1 September indicating a 0.7% quarterly growth came as a sigh of relief- it escaped technical recession. Governor Lowe mentioned that the pre- Delta trajectory will be hit only in the second half of next year.

As per the Organisation for Economic and Cooperation and Development (OECD), the Australian economy would see a 4% growth this year- this estimate is 1.1% lesser than the projections in May. It is one of the most significant downgrades for any country between two consecutive periods. At the heart of the problem are the NSW and Victoria lockdowns.

Christmassy vibes in the economy

The Christmas season could be the season of joy for the economy.

From November, Australia plans to give permission to travel abroad while following home quarantine on return. Morrison, in a statement, mentioned that they wanted all internal and international borders reopened once 80% vaccination has been achieved by the end of next month. The country has also expanded the recognised vaccine list so that more Australians can return. Chinese students who are a third of the international education sector in Australia before the pandemic can have Chinese students return due to the acceptance of the Sinovac vaccine.

Scott Morrison has also expressed that as more and more people return to work and as areas emerge from lockdowns, the economy will see sunshine again. However, another critical factor will be vaccinations, without which no optimistic forecast will ever hold good.

Image Source: © Iqoncept | Megapixl.com

Data shows that there has been a 55% annual surge in the short term jobs being advertised. The Australian Retailer's Association, too, has projected optimistically about the spending around Christmas. Preparing for the demand surge, there is a hiring spree among supermarket giants, and this hiring spree would further rise nearing the festive season. August registered a 20% jump in online sales. Companies are now stocking up inventory and getting warehouses ready so that there are no shortages.

Related Read: Impacts of vaccination on businesses in Australia

Optimism in revised outlook by Fitch

Another silver lining was seen when Fitch Ratings revised Australia's Long- Term Foreign- Currency Issuer Default Rating (IDR) from negative to stable at 'AAA.' This is indicative of increased confidence in the country's fiscal consolidation path clubbed with the stabilising public debt ratio in the medium term. It is all cushioned by the robust economic recovery even after the pandemic driven setbacks. Fitch, in a statement, expressed continuance of the economic recovery in the country.

Could the Evergrande crisis be a roadblock?

Stock markets across the globe are feeling the tremors of the quaking Chinese economy. Australia has a reason for worry because, by volume, 80% of the country's iron ore exports are to China. The real estate sector is in trouble in Chine. In addition, the goal of carbon neutrality will contribute to difficulties for Australia because steel is a significant contributor to pollution in China. Both the problems in China will reduce crude steel output by 2021.

Related Read: Australia gasps as Chinese property bubble nears burst

Bottom Line

The pre-Delta variant recovery and bounce back gives hope that once a significant part of the population is vaccinated, the recovery is sure and will be speedy. The chief economist at BIS Oxford Economics, Sarah Hunter, too, opines that easing restrictions and supportive monetary and fiscal policies clubbed with confidence in households and businesses will help the economy recover. However, alongside, OECD warns that the economy must be on its toes to offer flexibility in response to the changing scenarios at any time.  Also, premature or ambiguous withdrawals of policy support too would not be a good idea until the picture is clearer.