POLL-Australia's economy out of recession, but recovery path bumpy
By Shaloo Shrivastava and Hari Kishan
BENGALURU, Oct 27 (Reuters) - The worst is over for the Australian economy as coronavirus infections recede and fiscal and monetary stimulus begin to work, but lower immigration and high unemployment will keep the recovery path uneven, a Reuters poll showed.
Australia has been largely successful in combating a fresh outbreak of the virus spread compared with many other developed countries. Victoria, the recent epicenter of a resurgence, reported last week active cases had fallen to a four-month low.
The Australian economy slumped into its first recession since 1991 this year, contracting 7.0% in the April-June quarter when economic activity came almost to a standstill on strict lockdowns, following a 0.3% decline in January-March.
But the economy was expected to have grown 1.5% last quarter and was predicted to expand another 1.4% this quarter.
That would still leave Australia's economy 3.9% smaller in 2020 as a whole, according to the Oct. 13-23 Reuters poll of 35 economists and analysts.
"The international border is expected to remain closed until mid-2021. This is expected to weigh on migration, tourism and education exports," said Paul Bloxham, chief economist for Australia and New Zealand at HSBC.
"In addition, rising geopolitical tensions between Australia and mainland China are set to weigh on trade and foreign investment."
Yet fiscal and monetary stimulus measures meant the economy was predicted to bounce back, expanding 3.0% on average next year and in 2022.
"Australia has had far greater success in containing the virus than most other large advanced economies. Coupled with huge fiscal support, that means the recovery in economic activity could surprise to the upside next year," economists at Capital Economics said.
But that 2021 consensus was less optimistic than the Oct. 6 official estimate of 4.3% growth next year.
Economists said high unemployment, lower immigration and a flare-up in Australia-China relationships were the top risks to the recovery.
The government announced expansionary measures in its budget, including A$300 billion in emergency stimulus to prop up the economy, tipping the country into its deepest deficit on record.
Those measures were forecast to push the budget deficit out to a record 11% of GDP this fiscal year ending June 30, 2021. But the cost of increased government borrowing is expected to be manageable -- demand for the debt has been strong and bond yields remain close to historic lows.
All that stimulus is unlikely to stoke inflation as low wage growth and high unemployment keep price pressures low. The poll forecast consumer prices would rise 0.6% in 2020 and 1.6% in 2021.
The Reserve Bank of Australia reduced interest rates to a record low of 0.25 percent in March and launched an "unlimited" bond-buying programme.
Governor Philip Low said this month the RBA board was considering easing further to support employment and growth.
The latest poll on monetary policy - clubbed together with forecasts from a survey last week - predicted the RBA would cut rates by 15 basis points to a low of 0.10% at its next meeting.
"We anticipate a bumpy road to recovery, with unemployment set to jump further while inflation remains subdued. Reflecting this, we expect the RBA to ease on November 3," said Andrew Ticehurst, economist at Nomura.
(Reporting and polling by Shaloo Shrivastava and MD Manzer Hussain; editing by Ross Finley, Larry King)
((firstname.lastname@example.org; +91 9972955399;))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.