Hopes growing for national economy on back of Gladys Berejiklian’s plans

Hopes are high for a rapid reopening of the Australian economy from lockdowns, with NSW Premier Gladys Berejiklian expected to outline a plan by the end of the week.

Hopes are high for a rapid reopening of the Australian economy from Covid lockdowns. Picture: NCA NewsWire

Hopes are high for a rapid reopening of the Australian economy from Covid lockdowns, with NSW Premier Gladys Berejiklian expected to outline a plan by the end of the week.

But while Prime Minister Scott Morrison has called on state and territory leaders to start easing lockdowns once Covid vaccination rates reach 70 per cent, he is still encountering resistance from some who insist on maintaining “Covid zero” at all cost.

Much of corporate Australia is flush with cash from booming commodity prices, soaring house prices, asset sales, work-from-home and online shopping trends and a rapid recovery from the first Covid recession, but some will now be experiencing significant cash burn from lockdowns.

So while the big miners are boosting their dividend payments and the banks and others have flagged plans to reward their shareholders with buybacks, those directly in the firing line of lockdowns – including some of the travel and gaming companies and property trusts – may look to raise equity.

The ASX 200 share index has risen a healthy 0.6 per cent to 7531.7 this week amid a deluge of earnings reports which have caused some volatility in individual stocks.

But travel stocks have risen much more than the broader market after the FDA gave its full approval for the Pfizer-BioNtech vaccine to be used in over 16’s, and Ms Berejiklian said she will reveal what fully vaccinated people will be able to do from September, assuming her vaccination targets are met.

Qantas is up 14 per cent, Webjet is up 17 per cent and Flight Centre is up 18 per cent this week.

But with NSW recording a record 919 locally-acquired Covid cases, Victoria recording 45 such cases, New Zealand recording a record 62 locally-acquired cases, and the US having more than 25,000 people in ICU for the first time since the pandemic began, the numbers are going the wrong way.

Moreover, most state and territory leaders have little appetite for “living with Covid”.

Meanwhile, Westpac chief economist, Bill Evans, lowered his expectations for the Australian dollar after it fell sharply to a nine-month low of 71 US cents last week as iron ore prices dived, China’s economic data disappointed, and concern about Covid lockdowns in Australia worsened.

Mr Evans maintains that the dominant global theme for 2022 and 2023 will be increasing vaccination rates and economic support from record fiscal and monetary stimulus and strong household balance sheets boosted by high asset prices will favour “risk-on” currencies like the Aussie dollar.

“But set against that overall backdrop we should not underestimate the pervasive risks around the delta strain, further unknown strains, and the emerging evidence of the need for boosters for some vaccines,” he warned.

“This transition to a world of sustained recovery will continue to be bumpy.”

In his view, that prognosis for the global and domestic economy “raises the level of uncertainty and supports a more cautious approach to our global growth thesis”.

After lowering its Australian growth forecasts to 2.4 per cent for 2021 – including a 2.6 per cent contraction in the June quarter – and 5 per cent in 2022, Westpac also trimmed its world growth forecasts to 5.5 per cent from 5.7 per cent for 2021 and 4.5 per cent from 4.7 per cent for 2022.

“Those revisions still entail only a modest downward revision for growth in China, where markets have recently been concentrating some of their concerns,” Mr Evans said.

“Our view entails China successfully dealing with its pandemic challenges,” he said.

But increased uncertainty over the outlook has “flattened and extended” his forecast profile for the Aussie dollar so that he now sees it peaking at US78c in 2022, down from US82c previously forecast.

As risks around the pandemic start to dissipate, he expects the Aussie to reach US80c in 2023.

But he has lowered his end-2021 forecast to US75c from US78c reflecting the “heightened uncertainties associated with delta and our lower starting point.”

And in recognition of the recent downward “shock” to the exchange rate, Mr Evans has also trimmed his end-September forecast to US72c from US75c previously forecast.

“Once currency markets absorb significant data changes such as the big shift in the iron ore prices over the last five weeks there is usually an extended period of stability,” he said.

“We expect that we are now entering that period although strategists are pointing to ongoing short term downside risks (and) markets are currently focused on the outlook for FOMC tapering.”

While not expecting Fed chair Jay Powell to explicitly announce a change of policy in his Jackson Hole speech on Friday, Mr Evans sees it laying the foundation for a formal decision at the September FOMC meeting, with the tapering process to begin in January 2022.

While that might affect the outcome of the RBA’s board meeting next month, Mr Evans maintains that the RBA should not only defer its proposed taper but to lift its bond/semi purchases from $5bn to $6bn with a full review by the November 2 Board meeting.