Major bank chiefs predict economy will bounce back strongly

The bosses of NAB and Westpac predict the economy will kick back strongly once current lockdowns are eased.

Containers are stacked on a cargo ship at Port Botany after the economy rebounded earlier this year. Picture: AFP

Two of the nation’s major-bank chiefs have predicted growth will kick back strongly from a September quarter contraction, with National Australia Bank boss Ross McEwan saying some businesses were doing incredibly well in a multi-speed economy while others were “really hurting”.

Both Mr McEwan and Westpac chief executive Peter King sketched an optimistic economic outlook in appearances before the House economics committee on Thursday.

The NAB chief said mining, agriculture and some parts of the manufacturing sector were among the strong performers.

“This also gives me confidence in the path ahead,” he said.

“In the longer-term it will be business that leads growth and job creation.

“Before the most recent lockdowns, the level of small and medium business lending activity was the highest we had seen in six years.”

Mr King said in his opening statement he was confident in the underlying strength of the economy, forecasting a “strong” bounceback in 2022.

The bank’s economics team, he noted, was predicting a 4 per cent contraction in GDP in the three months to September, followed by a rebound to 7 per cent growth in 2022 when restrictions eased.

“We are seeing resilience from our customers, however there are clear pockets of challenge,” Mr King said.

While half the country is currently in some form of lockdown, business leaders regard lifting double-dose, adult vaccination rates to the 70 per cent and 80 per cent thresholds in the national cabinet plan as the best way out of the crisis.

Westpac CEO: ‘We are seeing resilience from our customers, however there are clear pockets of challenge.’ Picture: Jonathan Ng

Mr McEwan said vaccination was “our light at the end of the tunnel”, with current forecasts showing 80 per cent of eligible Australians would have their first jab within three weeks, and their second jab by mid-November.

The national cabinet plan was that fully vaccinated residents would be exempt from all domestic restrictions when the 80 per cent adult vaccination target was reached.

However, Australians needed more detail on what this meant and how it would work.

“European countries have provided this by implementing a vaccine pass, which gives people freedom to attend restaurants, sporting events, major concerts and domestic travel,” Mr McEwan said.

“Australia needs its own national vaccine pass, providing similar freedoms, ready to launch when we reach 80 per cent.

“This should be developed alongside existing plans for an international vaccine passport for Australians to prove their immunisation status overseas and on their return to Australia.”

Deutsche Bank said in a note to clients that Australia might be 50 days away from freedom, marking October 29 as the day that the nation would tick over 70 per cent.

The investment bank said its prediction was consistent with guidance provided by the NSW Government, with Gladys Berejiklian having suggested lockdown restrictions could be eased by mid-October.

Deutsche Bank economist Phil Odonaghoe said NSW was likely to reach the 70 per cent threshold on Sunday, October 17, paving the way for “Magic Monday” on October 18.

ACT looked set to reach the milestone in four weeks on October 7, while Queensland was at the other end of the scale on November 15.

Victoria was in the middle, likely to reach 70 per cent on November 4.

NAB CEO Ross McEwan says the fact some sectors have done well in the pandemic gives him confidence for the path ahead. Picture: Aaron Francis

Mr McEwan said he was very confident that the economy would recover quickly when restrictions were eased.

The lockdowns, he said, had not been as financially damaging for many customers as the restrictions imposed last year.

“Many businesses are in a state of hibernation, waiting for restrictions to open up and ready to get going again,” the NAB boss said.

“For others, in particular, small business customers in Sydney and Melbourne CBDs, the situation is more fragile.

“The number of customers in financial hardship is rising since the Delta outbreak but most continue to be able to make some form of payment.”

At the end of last month, just over $1.8bn in NAB lending was on deferral compared to $58bn at the height of the pandemic last year.

Mr King said Westpac’s customers were resilient but there were clear “pockets of challenge”.

“We are helping customers via loan repayment deferrals, we have also made interest-free overdrafts available to small businesses, and for business customers who have needed immediate help we have provided more than $600,000 in emergency Covid cash grants,” he said.

Westpac currently had $2.75bn of mortgages with repayment deferrals, down significantly from a $55bn peak last year.

In small business loans, total deferrals were $70 million compared to a $10bn peak.

Small businesses were showing “particular resilience”, with many pivoting or evolving their operations and supply chains to better withstand lockdowns.

Mr King said the 12 local government areas of particular concern in NSW had felt the highest impact.

“We are also seeing self-employed small business owners being over-represented in mortgage deferrals,” he said.

The Westpac chief said he was a firm believer in the national cabinet’s roadmap out of Covid-19.

The combination of reaching the vaccination targets, increased use of rapid testing and continued use of social distancing and hygiene practices was the best way to move away from lockdowns and learning to live with Covid.