Westpac warns of sharp economic contraction
Westpac is predicting a sharp contraction of the economy in the September quarter, but the big four still expects the preconditions to be met for a cash rate lift in the first quarter of 2023.
Just days after revising its growth outlook, Westpac has rethought its previous figures and is instead forecasting a sharp 2.6 per cent GDP contraction in the September quarter as a result of the changing situation in Victoria and NSW’s likely lockdown extension until end October.
The big four bank has reworked its scenarios, noting that while previously it believed NSW could exit lockdown at the end of September, the state’s rapid deterioration is likely to see the entire-state lockdown last until end October.
“Our point estimate for NSW puts full vaccination (two jabs) at 80 per cent (16 years and over) by mid October and we allow two more weeks for a period of easing in restrictions through to the end of the month,” the big four said.
But despite a negative revision for September, Westpac is still convinced a lift in hours worked in November and a subsequent December rise will result in a sharp economic recovery which will yield a 2.6 per cent economic lift in the December quarter.
Under these estimates the Australian economy grows by 2.4 per cent in 2021, down slightly from 3.2 per cent in its earlier forecast.
Westpac then expects a strong 5 per cent economic expansion in 2022 on the back of globally high vaccination rates, pent-up demand, rising housing markets, strengthened household and business balance sheets and expansionary fiscal policy in an election year.
As such, the big four bank is confident the preconditions will be met for a rate hike in the first quarter of 2023.
“With the unemployment rate and inflation on track to achieve the [Reserve Bank] board’s objectives in the second half of 2022, supported by the 5 per cent recovery pace in 2022, we still support the view that the RBA will be raising the cash rate in the first quarter of 2023,” Westpac said.
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