Australia to see deep contraction in Q3, RBA seen sticking to taper – Goldman Sachs

Amid extended COVID-19 lockdowns in Australia, Goldman Sachs economists predict a deep economic contraction this quarter while adding that the Reserve Bank of Australia (RBA) will stick to its taper plans, per Bloomberg.

Key quotes

“Gross domestic product is likely to fall 2% in the third quarter from the previous period, driven by weaker household consumption and construction activity.”

“The economy is then expected to expand 1.8% in the fourth quarter as restrictions are relaxed more gradually than in the past.”

“The downside risks to Australia’s macro-outlook have increased considerably since early July when the Reserve Bank of Australia announced the scheduled taper of its quantitative easing program.”

“Our base case is for the QE taper to proceed in September as scheduled (65% probability), but we continue to see a strong argument for the RBA to delay any (even if modest) withdrawal of policy support.” 

“Revisions resulted in it cutting its 2021 forecast in annual averaged terms by half a percentage point to 4.2%. In turn, it boosted its 2022 estimate by 0.4 percentage point to 4.2%. 

“Projects, based on the current pace, that the share of adults with two doses will rise from 30% currently to the government’s 70%-80% target by around mid-November.”

“While the improvement is encouraging, the experience of countries more advanced in the vaccine rollout raises a number of potential issues on the horizon.”