Hope that Covid-19 vaccines immunise economy

RBA governor Philip Lowe in Sydney on Tuesday. Picture: James Brickwood

Be patient – the vaccine cavalry is coming, Dr Phil told Australians, as his home city awaited Gladys Berejiklian’s call on reopening the financial and services hub.

Philip Lowe says over the next six months, as the bulk of people wanting a Covid vaccine receive at least one jab, the economic dynamic will change and our lives will return to normal. As of Monday, 31 per cent of the population over the age of 16 had received a first dose, with 9 per cent now fully vaccinated.

If you believe national cabinet’s plan can work, and frankly there is nothing else at this stage, then international travel will resume next year, bringing needed skilled workers and fee-paying foreign students.

But who knows, this is a small p plan rather than one in bold caps and could bite the dust when the next mutant strain flies in. What we do know is lockdowns are bad for confidence and business, coffee maestros and online retailers notwithstanding.

Buyer confidence tumbled last week to its lowest level since April. The fall came as lockdowns and restrictions washed across several states to control the spread of the more infectious Delta variant, with NSW consumers leading the gloomists.

Yet debit and credit card spending figures from the Commonwealth Bank reveal surprising retail resilience. The kind of lockdown and community response matters, with the laissez faire, “try to do the right thing” approach in Greater Berejiklian leading to a tiny fall in spending.

In NSW card spending growth in the first week of July was 9.9 per cent above its 2019 level (2020 is not a reliable comparison); a week earlier spending growth was 11.1 per cent. Victoria’s previous lockdown, which started on May 28, caused a 21 percentage point slump in the CBA card figures.

While the next hike in rates is now closer, with economists seeing the RBA moving the cash rate up a notch by the end of next year or early 2023, there are a lot of positives in the expansion to encourage optimists.

CBA’s Belinda Allen sees spending sustained by low interest rates, a strong jobs market, a booming housing sector and a decline in the savings rate.

Lowe is a card-carrying optimist, but still he tried to dampen expectations of the rate-hike hawks. Long-term structural changes may hold back wages growth, and inflation, and the day when we get back to normal interest rate settings.