HSBC marks Australia down on growth as COVID flares

September 3, 2021

SYDNEY -- More lockdowns mean a sharper 3Q21 downturn for Australia, then a gradual recovery as vaccination rates pick up, says HSBC, which has lowered its 2021 growth forecast to 3.5% (from 4.5%) and lifted its 2022 growth forecast slightly to 2.5% (from 2.4%).

HSBC says Australia's economic conditions are decidedly worse than when the RBA's board last met in early August, and the last time HSBC revised its forecasts in mid-July.

"Lockdowns have been extended and are more widespread, and COVID-19 case numbers have risen further," the bank says.

"There has been a significant shift in strategy in NSW and Victoria from an elimination approach to focussing on the vaccine rollout to allow re-opening, while most other states and territories are still pursuing elimination strategies.

"For NSW, the lockdown is expected to be gradually lifted from mid-October, when vaccination rates are forecast to reach 70%. At the current pace of rollout, it will be December before every state reaches 70%.

"However, our working assumption is that this threshold is unlikely to mean a full re-opening of state borders and periodic lockdowns will still be likely.

"We expect growth to stall in 2H21. However, extended lockdowns mean we now expect a sharper fall in GDP in 3Q21, and do not expect a full bounce-back in 4Q21.

"Unlike the RBA's central forecast from its 6 August statement, we do not expect a 'V-shaped' bounce in 4Q21. As a result, we lower our 2021 GDP growth forecast to 3.5% (from 4.5%). We expect a recovery through 2022, but for this to be gradual.

"A shift in activity from 4Q21 to 1H22 lifts our year average forecast for 2022 to 2.5% (from 2.4%), which is still well below consensus and the RBA." (ATI).