Read for 5 minutes SYDNEY, Australia (Reuters) – COVID-19 outbreaks in Australia, as well as a slow vaccination rollout, are putting a damper on the country’s remarkable economic recovery, souring corporate sentiment and casting doubt on the country’s route to post-pandemic existence. During a lockdown to limit the spread of a coronavirus illness (COVID-19) outbreak in Sydney, Australia, on June 30, 2021, a pedestrian wearing a protective face mask walks by light rail platforms devoid of waiting passengers in the city center during morning commute hour. Loren Elliott/REUTERS/File Photo As the Delta variant of the virus spread out from the coastal area of Bondi, Sydney, Australia’s largest city, entered its harshest lockdown since the pandemic began this week. Partially imposed restrictions were implemented in other large cities, restricting movement for 80 percent of the country’s population. The limits come amid growing worries over Australia’s delayed and ineffective vaccination rollout, which has one of the lowest COVID-19 inoculation rates in the developed world, with only 8% of the adult population receiving the vaccine. Investors and businesses are becoming increasingly irritated by the increased challenges. Despite positive news on jobs, trade, and credit growth this week, expectations are building that policymakers would need to maintain present emergency levels of support for the economy rather than reduce them, pushing the Australian dollar to a six-month low. Rodrigo Catril, senior FX strategist at National Australia Bank, stated, “Covid remains a concern and a drag for the Aussie.” The AUD rose to a three-year high in February, owing to Australia’s economic strength and achievement in containing the pandemic, prompting investors to price in interest rate hikes beginning in late 2022. However, with the current Sydney shutdown projected to slash 0.1 percent off annual production, some economists are forecasting a dovish tilt by the country’s central bank at its monthly policy meeting next Tuesday. Based on stronger-than-expected economic data, economists in a Reuters poll this week predicted the Reserve Bank of Australia (RBA) will chose not to extend its three-year yield goal of 0.1 percent to November 2024, from April 2024 now. [AU/INT] “The risk heading into the meeting…is that the Delta variant draws out the doves, and the RBA opts to roll to the November 2024 bond,” Eleanor Creagh, market strategist at Saxo Capital Markets, said. Shane Oliver, chief economist at Australian money manager AMP, expects a third round of RBA quantitative easing to be worth A$75 billion, up from A$50 billion before. The majority of economists foresee a “flexible” setting. As the government ran up record budget deficits for its major fiscal stimulus programs, the RBA’s bond purchasing program pushed borrowing costs to all-time lows. In a reminder of the pandemic’s long-term impacts, the government’s own predictions show deficits through 2060/61, despite optimistic forecasts for surpluses in 2019, implying the need for high productivity growth. Businesses are also frustrated, not just by the on-again, off-again lockdowns affecting the entire country due to a small number of cases, but also by the lack of a clear path out of the pandemic. Companies have been clamoring for the reopening of borders, led by Australia’s main employers’ organisation. “You look elsewhere and, of course, Europe is opening up,” said Simon Bernardi, managing director of tour operator Australia & Beyond Holidays. “But for some reason, we are not in a hurry.” Bernardi claims that the recent state border closures and stay-at-home orders cost him “hundreds of thousands of dollars.” “Unfortunately, it’s driven by politics,” he added, “since locking everyone down makes it simple for them to win elections.” The political fact that tight borders and a conservative attitude earn votes in Australia, as evidenced in two recent state elections, drowns out the business rationale for reopening. Treasury estimates place the reopening in mid-2022, while Prime Minister Scott Morrison has reluctant to commit to a timetable, citing the looming election. Faced with widespread condemnation, Morrison revealed on Friday a hazy path out of the pandemic, including the use of lockdowns as a “last option.” However, no definite timeline for the full reopening of international borders was provided. Bernardi of Australia & Beyond believes the damage has already been done and that the consequences will be long-lasting. “These lockdowns will have an influence on us in the future as well, because consumers are no longer confident in booking. That has been a significant challenge, and the sector has suffered as a result “he stated Swati Pandey contributed reporting, while Sam Holmes and Kim Coghill edited the piece./n
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