RBC has cut its forecast for Australia’s economic activity in the quarter to March by almost 1 per cent to just under 1 per cent, taking annual growth for the 2022 calendar year to 4 per cent, from 4.2 per cent initially anticipated.
“Australians have substantially reduced their movement and activity either voluntarily to avoid omicron or through the required isolation periods when testing positive or as a close contact,” said Su-Lin Ong, RBC chief economist at RBC.
RBC, however, is bullish on the outlook. “We remain of the view that the current COVID-19 developments will be a temporary hit to activity/labour market with households and businesses increasingly adaptive and resilient to each COVID-19 shock,” said Ms Ong.
The investment bank revised up its inflation forecasts for the year due to the intensification of globy supply constraints in the wake of omicron.
“While the RBA may well be tempted to still play down these pressures, we remain of the view that the stronger labour market dynamics, rising inflationary expectations and some easing of the headwinds to wages growth should see annual wages pick up towards 3 per cent by end 2022,” said Ms Ong.
RBC’s annual inflation forecast is 2.6 per cent by mid-2022 and 2.4 per cent by December 2022.
The bank expects the RBA to end quantitative easing in February. “Rate hikes may still be some way off but the market will likely assume a more condensed timeframe if the RBA stops bond purchases soon,” said Ms Ong.
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