By James Glynn
SYDNEY--The widely expected snapback in Australia's economy later this year once Covid-19 vaccination rates hit key thresholds and lockdowns are eased is a fiction, according to the Commonwealth Bank of Australia.
Instead of roaring back to life upon reopening as the economy had following earlier lockdowns, growth will instead be patchy as the engines of industry splutter amid a new and uncertain backdrop of surging Covid cases, with much of the population still unvaccinated, said Gareth Aird, head of Australian economics at CBA.
"We expect the economic rebound to be patchy from that point over a three- to six-month period as households and businesses adapt to living with Covid," Mr. Aird said.
Strong recoveries have featured before, but "things will look very different in Greater Sydney and potentially other parts of Australia when the current lockdown is over," he added.
The assessment from one of Australia's biggest banks clashes with the view of the Reserve Bank of Australia, which is anticipating a strong rebound in the economy once lockdowns are over, setting up a booming 2022.
Belief in the "snapback" scenario is underpinning the central bank's hesitancy at the moment to shift course on policy by suspending plans to begin withdrawing policy stimulus.
The RBA's plan to reduce its government bond buying next month to 4 billion Australian dollars (US$2.90 billion) per week from A$5 billion currently was announced in early July, before it was known that lockdowns would stretch on and send the economy into a deep contraction in the third quarter and fan talk of a coming recession.
Australia is currently in the grip of the Delta strain of the Covid-19 virus, with Sydney, a key economic hub, now in its eighth consecutive week of lockdown with no end in sight. Case numbers across Greater Sydney continue to rise, lending support to the idea that government efforts to suppress the virus have failed, with hope turning now to the fourth quarter when vaccination rates will be sharply higher.
State borders are shut, exacerbating the downturn. Australia's international border is also shut amid little expectation it will reopen before mid-2022 at the earliest.
CBA's Aird said lockdowns across Greater Sydney will be lifted once the state achieves a 80% vaccination rate, but he added that even then one in five people will not be vaccinated.
New Covid-19 cases will surge on reopening in New South Wales as has been the case overseas, Mr. Aird said.
"It will simply be a matter of time before the virus is rampant across the entire country," he added.
This is likely to mean that there will be a significant period of adjustment for households and businesses as the virus circulates within the community in large numbers and hospitalizations rise.
"It will mean that the economic recovery, at least initially, is a bumpy ride," he said.
Pent-up consumer spending will boost sales at shops, but many individuals may be deterred in the beginning from getting out and about as Covid cases increase significantly.
"It is likely that a large chunk of office workers will want to continue to work from home as Covid cases spike, which would have implications for [central business districts]," Mr. Aird said.
More targeted fiscal support will be required to keep businesses afloat as the economy slowly regathers momentum.
The job market will take time to repair, with CBA forecasting that the unemployment rate is unlikely to return to its recent low of 4.9% in June until mid-2022. That's more sluggish than the RBA's current forecast of an unemployment rate of 4.5% by mid-2022.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
08-17-21 2128ET
