Long road to economic recovery: RBA
The Reserve Bank of Australia warns further outbreaks of coronavirus will threaten the country's economic recovery, potentially pushing high levels of unemployment into 2021.
In its monthly monetary policy statement's economic outlook, the central bank said the unknown timeline of when a COVID-19 vaccine might be produced would spur on persisting uncertainty within the economy.
The RBA is expecting Australia's gross domestic product to fall 3 per cent for 2020 followed by an anticipated 6 per cent rise 2021. But it noted further lockdowns in Victoria could fuel a longer road to economic recovery.
"Employment and hours worked are also expected to increase slightly over the second half of the year in most of the country," the RBA said.
"However, the effects of the heightened activity restrictions in Victoria are likely to offset the pick-up in GDP growth in other parts of the economy in the September quarter."
The central bank expects the economic setback caused by the Victorian wave will likely push the unemployment rate up to 10 per cent, a 0.5 per cent upward revision from its initial estimates.
In its statement, the RBA said a possible second COVID-19 wave peaking in early 2021 would delay Australia's recovery, with domestic activity to remain subdued until the middle of next year.
"This would induce businesses to keep employees on reduced hours and delay hiring new staff, with annual growth in employment only turning positive in the second half of 2021," it said.
In the RBA's worst-case scenario, unemployment levels would remain high until at least the second half of 2021.
"The longer the economy remains weak, the more households and firms will suffer severe financial stress after running down their liquidity buffers," the RBA said.
"These stresses could slow the recovery further and increase the chance of the labour market scarring for many workers."
Westpac chief economist Bill Evans said the update showed the RBA had no intention to change its monetary policy setting until inflationary levels climbed to around 2 to 3 per cent.
The RBA at its Tuesday meeting announced it would retain its current targets for the cash rate and three-year bond yields at 25 basis points.
"The policy outlook is unchanged, highlighted by consistent support for expansionary fiscal policy with the accommodative monetary policy stance being 'maintained as long as it is required'," Mr Evans said.
"Westpac has been consistently more constructive on the growth outlook for 2020 and now expects a contraction of 4.7 per cent in 2020, taking into account a contraction of 9 per cent in Victoria in the September quarter."
Originally published as Long road to economic recovery: RBA