Australia's Economy Powers On, Recouping Pandemic Losses
Comment of the Day

June 02 2021

Commentary by Eoin Treacy

Australia's Economy Powers On, Recouping Pandemic Losses

This article from Bloomberg may be of interest to subscribers. Here is a section:

Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 outbreaks, boosting consumer and business confidence. A massive fiscal-monetary injection strengthened the financial position of households and firms during the lockdown, and consumers are spending and companies hiring.

“Australia is in rare company here -- only five other countries can boast an economy that’s larger now than before the pandemic,” said Kristian Kolding, a partner at Deloitte Access Economics. “Maintaining this trajectory is now the task at hand -- the lockdowns in Victoria are a stark reminder that the pandemic is far from over.”

Deloitte noted that on average, economies in the Organisation for Economic Cooperation and Development are 2.7% smaller than they were before the pandemic. The U.K. is almost 9% smaller, the European Union is 5% smaller and the U.S. has shrunk 1%, it said.

Yet a potential risk to the outlook is the sluggish rollout of a Covid vaccine. This has been magnified by a renewed outbreak of the virus in Melbourne that prompted a lockdown in the nation’s second-largest city, and has now been extended for another week.

Eoin Treacy's view

Victoria is back in lockdown but the number of cases is comparatively low and the rest of the country is reasonably unaffected. Investors are taking the news in their stride. After more than a decade of liquidity infusions the reality remains liquidity beats most other factors most of the time. Central bankers also understand that logic and must feel vindicated in their actions. Every time there is a problem, they boost money supply and act to depress yields and the economy rebounds. They are unlikely to do anything different until that policy stops working.

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