Australia Economy to Stall In Second Half on Outbreak, HSBC Says

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Australia’s economy is set to stagnate in the second half of the year as shutdowns in its two largest cities following an outbreak of a highly contagious coronavirus variant combines with a general deceleration, according to HSBC Holdings Plc.

“Even before the Sydney outbreak we had expected Australia’s growth to slow from its recent rapid growth rates, as population growth has stalled due to the closed border and as the fiscal impulse fades,” Paul Bloxham, chief economist for Australia, said in a research note Friday. He expects gross domestic product will drop 0.3% in the current quarter and rise 0.3% in the final three months.

The economy will then bounce back next year, though “the other headwinds to growth in 2022, including the only slowly re-opening border and tensions with China, are expected to remain,” he said.

Melbourne entered a snap five-day lockdown overnight, joining Sydney -- currently in a five-week shutdown -- in imposing stay-at-home restrictions as the delta strain of the coronavirus spreads around Southeast Australia. The setback comes with the economy powering along as the jobless rate fell to 4.9% in June, the lowest level in 10 years.

Greater Sydney accounts for 22% of the national labor force. Bloxham reckons that while unemployment is likely to rise in the current quarter, it will be restrained somewhat by staff cuts being partly offset by a fall in the participation rate due to limits on movement.

The Reserve Bank of Australia earlier this month opted against pushing out the horizon of its yield target, while extending its quantitative easing program at a reduced level. A review of the QE program is due in mid-November.

“The sharper-than expected slowdown in growth, as a result of the Greater Sydney outbreak, raises the risk that the RBA decides not to taper after all,” Bloxham said.

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