Australia Opening-up

Clifford Bennett, Chief Economist at ACY

22.10.2021 12:45 pm

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Australia opening-up.

Stocks remained firm, but definitely paused. The SP500 hesitating around 4550, and the ASX200 not looking comfortable for a move beyond 7450.

Meanwhile we begin to see the first opening up recovery data for Australia. Month on month increases will of course be strong as we begin to climb off economic crisis lows. Also, not all of Australia was in lockdown and the mining sector continued to power ahead. Do not make too much of the initial data spikes. These will not represent where the economy is truly at.

We will definitely see strong increases, and the shift in the economy, initially for NSW will be significant. A thankful relief too, especially for the city of Sydney. Melbourne to follow. After the initial flurry of economic bounce back, I continue to expect the Australian economy to settle at sub-trend levels.

Over the next 12 months, Australia's economy is likely to perform at 2019 levels. This will be down on the previous post opening-up period.

Even this modest expectation, could be overly optimistic should the opening of international travel degrade into a somewhat more staggered long term approach than currently outlined. The strong surge in cases, hospitalisations and deaths in the UK, a highly vaccinated nation, is a stark warning as to what may lay ahead for Australia, in that 4-6 months from now vaccines are waring off window.

A free-for-all invitation to all possible variants may be something the Australian people become a little cautious of, particularly, if hospitalisations re-start an upward trajectory. Which, thankfully, they are not showing any sign of in Sydney just yet. Sydney remains the test bed for the entire nation and will continue to be monitored closely by other states before borders are opened.

Australia is in a great position having had a relatively mild number of cases and now opening up with high levels of vaccination. It will be some time before consumer behaviour returns to what it was, in a sustained fashion. Post the initial opening up party atmosphere for shopping and hospitality, which already appears less enthusiastic than we saw in the previous recovery phase.

As I have been forecasting all along, this will be a very mild economic journey. While initial spikes in data will of course be seen, be cautious in expecting an on-going strong economy akin to last time. This is an entirely different construct of support levels, duration weariness, and carries the long term loss of many businesses.

Clifford Bennett