Australia‘s central bank chief said economic growth is unlikely to lift
until the final three months of this year, with Victoria’s renewed
lockdown to contain an outbreak of Covid-19 “broadly offsetting” the
recovery thats been unfolding.To get more news about
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“Peoples attitudes to spending are changing because of the pandemic,”
Governor Philip Lowe said in his opening statement to a parliamentary
panel Friday delivered via video conference. “It is probable that
households and businesses will remain more cautious and that this will
affect consumption and investment. How long this change might last is
hard to tell.”
Lowe said in his semi-annual testimony that another issue is the
“growing impact” of an extended period of weak demand. He cited
construction as an industry whose pre-Covid pipeline of work is drying
up with firms now “having to scale back.”
The Reserve Bank of Australia is trying to navigate the economy
through a renewed lockdown of Victoria state, which accounts for almost a
quarter of gross domestic product, and a broader hit to sentiment
sweeping the rest of the country. Victoria earlier this month shuttered
large parts of its economy for six weeks after a surge in Covid-19
infections, even after the 5 million residents of state capital
Melbourne were ordered to stay at home.
The governor reiterated that Victoria was likely to cut 2 percentage
points from GDP in the current quarter. He also repeated that the RBAs
baseline scenario sees the Australian economy contracting by around 6%
this year, and then growing by 5% next year.
Unemployment climbed to 7.5% in July and the RBA expects it to reach
10% later this year due to the impact of Victorias shutdown and people
elsewhere in the country resuming their hunt for work, swelling
participation. The government has extended its signature JobKeeper wage
subsidy and additional JobSeeker welfare support beyond September,
though at a lower level.
“If we take into account people who are on zero hours, the true
unemployment rate is higher than the published measure,” Lowe said. “We
are expecting the published unemployment rate to decline gradually from
10%, but to still be around 7% in a few years time.”
The Australian dollar didn‘t really respond to Lowe’s opening
statement, and was trading at 71.44 U.S. cents at 10:04 a.m. in Sydney.
Lowe also addressed the debate over monetary financing. This involves
increasing spending and at the same time creating the money needed to
pay for it -- typically via central banks.
They can either buy the bonds sold by a government to cover gaps in
its budget -- or simply offer an overdraft, so that no bonds need to be
issued in the first place. In either case, its often said that the
effect is to “monetize the debt,” because policy makers have turned what
would otherwise have been debt into money instead.
“I want to make it clear that monetary financing of the budget is not on the agenda in Australia,” the governor said.
“The separation of monetary policy and fiscal financing is part of
Australias strong institutional framework and has served the country
well,” he said. “The Australian government and the states and
territories have ready access to the capital markets and they can borrow
at historically low rates of interest.”
The Wall