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Lockdowns will cause ‘large hit’ to activity in Q3

Due to lockdowns, we expect to see a large hit to activity in Australia in Q3. Our global growth forecast for 2021 is marginally weaker this month, 6.2% compared with 6.3% previously.

Global

Our global growth forecast for 2021 is marginally weaker this month –6.2% compared with 6.3%, previously. For 2022 and 2023 we continue to expect growth of 4.6% and 3.5%, respectively. There is an emerging divide between advanced economies (AEs) and emerging markets (EMs). This is in part related to generally higher COVID-19 vaccination rates in AEs. There is a downside to our China forecast following a Delta variant COVID-19 outbreak; mass testing and travel restrictions have been introduced, along with localised measures, but the risk is harsher measures will be needed. This could further disrupt global supply chains – where shortages, combined with rising commodity prices, are flowing through into inflation.

Australia

As a result of the ongoing lockdown in Sydney and periods of disruption elsewhere, we expect to see a large hit to activity in the September quarter and for the labour market to retrace some of the recent gains. However, we expect that ongoing support from both monetary and fiscal policy will see a rapid rebound, and a catchup for lost growth over 2022. That sees growth of 2.1% during 2021 (around 3.8% in year average terms) and 4.5% in 2022. Alongside this, we see the unemployment rate rising to over 5.5% in the near term but then returning to a path of recovery and ending 2022 at around 4.5% and 2023 around 4%. That said, most of the hit to the labour market will likely be reflected by a large fall in hours worked and rise in underemployment. Our outlook for wages and inflation are broadly unchanged and, in our view, continue to point to the first-rate rise occurring in early 2024 on the back of the RBA’s requirement for inflation to be “sustainably” back in the target band. The duration of the current lockdowns remains uncertain and present some downside risk both the magnitude of the decline in activity as well as the timing of the rebound.

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