RBA’s Harper Sees Delta Driving Unemployment Rate Back Above 5%
Reserve Bank of Australia board member Ian Harper said he expects the jobless rate to climb back above 5% and to see a “much bigger” fall in participation as renewed lockdowns along the nation’s east coast flow through to the labor market.
In July, the first full month of Sydney’s stay-at-home restrictions, unemployment actually fell to 4.6% from 4.9% and the economy managed to add jobs, according to data Thursday. But the report also showed hours worked fell and under-employment rose.
“Those numbers haven’t picked up the full impact” of the curbs, said Harper, one of six independent directors on the RBA board, who was giving his personal views in an interview. “There are likely to be more job losses and more people leaving the labor market in the period ahead.”
Australia this week suffered its worst day since the start of the Covid-19 pandemic, with new cases surpassing the previous record from more than a year ago. Yet the RBA is persisting with its plan to taper bond purchases next month, expecting the economy to bounce back rapidly from a likely contraction this quarter.
Harper said the economy seems to be tracking between the central bank’s base case and downside scenarios, as set out in its quarterly update of economic forecasts released two weeks ago.
Harper’s confidence in a quick rebound is partly because the hit to the economy is on the supply side, while evidence from Australia and abroad shows demand returns rapidly when restrictions are lifted. Still, he acknowledged that the delta variant of coronavirus is different than what the country faced last year.
“The case numbers are more unnerving than last time,” he said. “Delta has made it clear that we’ve got to have high rates of vaccination to give people confidence to get out and about.”
Policy makers have a role to play in “shoring up confidence,” he said, adding that the RBA’s decision to reduce weekly bond purchases to A$4 billion ($2.8 billion) next month -- from A$5 billion now -- is a way of signaling that things are going pretty well.
In minutes of its Aug. 3 meeting released Tuesday, the RBA said it’s prepared to respond to further bad news on the health front if those developments lead to a significant setback to the recovery. Harper said it will be up to the board to review the situation.
He agreed that circumstances had changed since the August meeting, referring to rising case numbers and further restrictions. But, he noted, the downside scenario in the bank’s quarterly update envisioned the entire east coast of Australia in and out of lockdowns until Christmas.
Harper said “it’s too early to tell” if the economy would enter another technical recession -- defined locally as consecutive quarterly contractions -- if lockdowns persist into the final three months of the year.
“What sort of recession is it if you have everyone rushing back to spend once lockdowns are lifted?” he asked. “What sort of recession has the stock market near record highs? Or people not having to sell their houses because they’ve lost their jobs? It’s more than just two quarters of negative growth.”
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