Goldman Cuts Australia GDP Forecasts, Sees RBA Sticking to Taper

(Bloomberg) -- Australia’s lockdowns are likely to trigger a deep economic contraction this quarter, while a slower lifting of restrictions due to the highly-contagious delta variant will weigh on the rebound, Goldman Sachs Group Inc. says.

Gross domestic product is likely to fall 2% in the third quarter from the previous period, driven by weaker household consumption and construction activity, Goldman economists led by Andrew Boak said in a research note Monday. The economy is then expected to expand 1.8% in the fourth quarter as restrictions are relaxed more gradually than in the past.

“The downside risks to Australia’s macro outlook have increased considerably since early July when the Reserve Bank of Australia announced the scheduled taper of its quantitative easing program,” Boak said. “Our base case is for the QE taper to proceed in September as scheduled (65% probability), but we continue to see a strong argument for the RBA to delay any (even if modest) withdrawal of policy support.” 

Australia’s latest outbreaks have shuttered Sydney and Melbourne, with the states of New South Wales and Victoria -- where the cities are located -- accounting for about half the national GDP. The surging infections forced the country to review its strategy of eliminating the virus. Prime Minister Scott Morrison now says it’s highly unlikely that Australia will return to zero cases.

Goldman’s revisions resulted in it cutting its 2021 forecast in annual averaged terms by half a percentage point to 4.2%. In turn, it boosted its 2022 estimate by 0.4 percentage point to 4.2%. 

Australia’s vaccine rollout meantime is picking up quickly after a sluggish start. Goldman projects, based on the current pace, that the share of adults with two doses will rise from 30% currently to the government’s 70%-80% target by around mid-November.

“While the improvement is encouraging, the experience of countries more advanced in the vaccine rollout raises a number of potential issues on the horizon,” Boak said. 

These include vaccine hesitancy among younger age groups and the potential need for vaccine-related incentives, including vaccine passports. There are also issues around booster shots, school children, and break through infections that pose challenges to the Covid end game, he said.

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