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RBA Survey: 73% of experts say Sydney’s lockdown will wipe $2bn or more off Australia’s GDP

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The latest round of lockdowns is set to cost an eye-watering amount to Australia's economy, according to experts.

In this month's Finder RBA Cash Rate Survey™, 40 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy, with all panellists expecting a rate hold for this month.

With almost half of the country in lockdown, just over half of experts who weighed in on the question* (55%, 6/11) agree with reports that the current lockdown across Sydney alone will wipe $2 billion off Australia's overall GDP, with a further 18% (2/11) believing that it will wipe even more.

Graham Cooke, head of consumer research at Finder, said it was no surprise that the latest wave of COVID-19 cases could put a serious downer on economic sentiment.

"Positivity towards wage growth and employment are both surging, with wage-growth sentiment currently at the highest point since our survey began 38 months ago.

"If the current lockdown in Sydney runs for the expected 14 days, it is unlikely to have much of a dampening effect on these figures.

"If, however, the outbreak is not contained and the lockdown continues for further weeks, we could very well see uncertainty return on these metrics," he said.

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54% expect NSW lockdown to continue

While the current lockdown across greater Sydney has been implemented for 14 days, 54% (7/13) of economists think this won't be enough.

Cooke said with lockdowns now following the spread of COVID-19 cases around the country, it's looking increasingly unlikely that we'll see the lockdown in NSW finish as scheduled.

"While the economy has held up well against external factors so far, keeping a lid on cases and the lockdown as short as possible is more important than ever."

Looking beyond lockdown at international travel, just over half (53%, 17/32) of respondents believe travel for vaccinated Australians will be allowed before mid-2022.

Only 9% (3/32) think that international travel won't be allowed before 2023.

Agreement on how Australians should spend their tax return

The majority of experts (21, 70%) think it's a good idea to encourage Australians to spend their tax refunds on their debts.

Data from Finder's Consumer Sentiment Tracker shows the average amount owed in credit card debt alone per card holder is over $5,000.

Cooke said encouraging Australians to think wisely about how they use their cash injection is a good idea.

"The pandemic has shown us what an unforeseen financial event can look like, so for many Australians, minimising debt and having some emergency cash is top of mind."

Peter Boehm of CLSA Premium said levels of household debt were too high.

"Once interest rates start to rise, so too will loan repayments and the overall debt burden. Paying off debt as soon as possible can save thousands of dollars in interest and help strengthen household financial wellbeing," Boehm said.

Brodie Haupt of WLTH also said it was important to encourage Australians to decrease their debt.

"However, as we have seen over the last year, it is now more important than ever to have a safety fund in place, so I wouldn't recommend using the whole refund to pay down debts."

1 in 3 economists expect cash rate rise in 2022

All 40 participants that took part in Finder's RBA Cash Rate survey correctly predicted that the cash rate would remain on hold today.

While only 5% (2/40) of economists believe that the cash rate will increase before the year ends, 1 in 3 (13/40) expect an increase to occur in 2022.

There is no expectation from the experts that the cash rate will decrease any time before 2023.

*An addendum was added to the survey after the lockdown was announced.

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "Domestic CPI and employment data allow a continuation of the ultra-low policy. Eventual reopening and a return to global growth suggest tightening may come sooner than 2024."

Shane Oliver, AMP Capital: "While the recovery has been stronger than expected, there is still a way to go to reach the RBA's conditions for a rate hike – in particular wages growth of 3% or more and inflation sustainably in the 2-3% target zone. Particularly with coronavirus still causing periodic problems. That said, we expect the conditions for a rate hike to be in place by 2023 so anticipate a 2023 rate hike, ahead of the RBA's own expectations for no rate hike until 2024 at the earliest."

Rebecca Cassells, Bankwest Curtin Economics Centre: "The most recent data from the May labour force survey revealed just how resilient the economy and labour market was at this point. Despite a fall in employment as JobKeeper ended, employment bounced back, adding 115,200 workers to the labour market, participation lifted and both unemployment and underemployment fell substantially. Job vacancies are now at a 12-year high and a number of states are seeing unemployment rates below 5%. A tightening labour market should lead to wage increases, which will also be helped along by the recent Fair Work decision to raise minimum wages by 2.5%. But recent virus outbreaks and lockdowns across the nation will dampen this positive trajectory – by just how much and for how long remains to be seen. In the meantime, the RBA will continue to hold the cash rate at 0.1% but likely introduce greater flexibility into its bond purchase program, aligning with what is looking to be a protracted and bumpy ride through the pandemic."

David Robertson, Bendigo Bank: "The pace of job creation and broader economic progress (despite ongoing COVID-19 lockdowns) suggests that the RBA will need to start increasing interest rates in 2022/23, with November 2022 or February 2023 most likely based on current projections."

Sean Langcake, BIS Oxford Economics: "The labour market continues to outperform expectations and has weathered the withdrawal of JobKeeper well. But we are still some time from seeing broad-based wage pressures emerge."

Benjamin Udy, Capital Economics: "The continued tightening in the labour market will cause the RBA to begin tapering asset purchases in November. However, we think it will take until early 2023 before wage growth rises enough to satisfy the RBA and cause the Bank to lift rates."

Peter J Tulip, CIS: "The RBA will not raise rates until inflation exceeds 2%. That is unlikely before 2023."

Peter Boehm, CLSA Premium: "Steady as she goes for now, but there'll likely be an interest rate increase sooner than previously envisaged, possibly sometime in 2022."

Stephen Halmarick, Commonwealth Bank: "Wages and inflation pressures to be evident by the end of 2022."

Saul Eslake, Corinna Economic Advisory: "I think the RBA is absolutely correct to insist that it won't lift the cash rate until the labour market is sufficiently tight to have started to generate wages growth at a pace sufficient to ensure that 'underlying' consumer price inflation returns sustainably to the 2-3% target band -- but where I differ from the RBA is that I think these criteria will be satisfied sooner than '2024 at the earliest', in part because the continued closure of Australia's international borders is resulting in faster reductions in the unemployment rate."

Craig Emerson, Emerson Economics: "The RBA has indicated it will not increase the cash rate before 2023."

Angela Jackson, Equity Economics: "While economic recovery is continuing at pace, there remains an ongoing need for monetary policy to remain very accommodative."

Mark Brimble, Griffith University: "Uncertainty is still the dominant force as we are seeing today in NSW. There is much more to be played out in this crisis and MP will need to be accommodating for some time yet."

Tim Nelson, Griffith University: "COVID-19 impacts are likely to be felt longer than anticipated. Loosening monetary policy is unlikely to be feasible so the next cycle will still be tightening but not for a while yet. The property market is better addressed through prudentials and land planning."

Tony Makin, Griffith University: "Depends on when the Federal Reserve acts in response to higher inflation in the US. Inflation here is also likely to jump in coming quarters. Meanwhile, upward pressure on bond rates worldwide will persist due to unprecedented government borrowing to fund budget deficits."

Tom Devitt, Housing Industry Association: "It will still take a while before wage growth and inflation are sustained enough at elevated levels to warrant an interest rate increase."

Alex Joiner, IFM Investors: "Despite the progress made in the economic recovery, the RBA wants to observe inflation within the target band and the unemployment rate close to 4% to generate wage inflation. These objectives may be sooner than the RBA's original guidance of 2024 but still remain some way off."

Michael Witts, ING: "Although current indicators are showing promising developments, there is still a way to go to meet the RBA criteria to start to adjust rates."

Leanne Pilkington, Laing+Simmons: "Despite some major lenders tipping the RBA will increase rates as soon as next year, we still see the current settings and the RBA's previously announced timeline as appropriate, especially given the most recent lockdowns."

Nicholas Gruen, Lateral Economics: "Recovery has been compromised by our appalling performance on vaccine rollout. However, rates may rise owing to strong demand and some price pressures in the US."

Jeffrey Sheen, Macquarie University: "The RBA has committed itself to no change in the cash rate until inflation is trending above its target. There will be a transitory jump in inflation in 2021-23 due to supply constraints, but these will abate if there are no more significant lockdowns. Beyond 2023, I expect wage growth will just be sufficient to raise the trend in inflation and trigger modest rises in the cash rate."

Michael Yardney, Metropole Property Strategists: "While there is much speculation in the media that interest rates will rise sooner rather than later, and there is a strong likelihood that inflation is going to increase, I can't see the RBA raising interest rates until wages growth reaches 3% to 4% per annum and that's a long way off."

Mark Crosby, Monash University: "No rate rises until 2023 are well flagged, though it will be interesting to see the next couple of inflation reads to see if this changes."

Julia Newbould, Money Magazine: "The economy is starting to move but a raise in interest rates might affect too many people who are currently too highly geared. I think the RBA will be mindful of any negative effects a rise might cause."

Susan Mitchell, Mortgage Choice: "The current lockdowns will put a strain on economic activity, so I don't expect to see any major changes from the RBA Board at its July meeting. Despite a strong result in the ABS's latest labour force survey, a cash rate hike is still a while off."

Alan Oster, NAB: "The economy is still recovering and core inflation will not be sustainably in the middle of the 2-3% target till then."

Malcolm Wood, Ord Minnett: "It will take time to reach the RBA's policy targets."

Rich Harvey, Propertybuyer: "I think there will be a move upward in official interest rates just before the end of 2022 as our economic recovery gathers at a faster pace and RBA will need to moderate inflationary pressures."

Matthew Peter, QIC: "The RBA will not change its rate call at the July meeting. But it will eventually pull the first rate hike into 2023. The RBA will follow the Federal Reserve, which means we can expect the RBA to target the second half of 2023 for lift-off."

Noel Whittaker, QUT: "They will be forced [to raise the cash rate] by pressure in the housing market."

Cameron Kusher, REA Group: "A lot of people have been pulling forward their RBA rate hike forecasts and it seems to be on the back of a few strong labour force prints. There's still a lot that can go right or wrong between now and 2024 and the RBA is clearly determined to wait until wages are increasing, we've reached full employment and inflation is in the middle of the target range. They were unsuccessful at achieving these things prior to the recession, I suspect they will want to ensure the recovery is firmly entrenched and international borders are reopened and the impact of that is seen before lifting rates."

Jason Azzopardi, Resimac: "I expect border closures driving labour gaps to stoke wage growth materially, increasing inflation and prompting RBA to start increasing rates."

Brian Parker, Sunsuper: "Even with a stronger than expected labour market, it'll still take time to get wage and price inflation high enough to justify a rate hike."

Mala Raghavan, University of Tasmania: "According to the RBA governor, the board is not expecting to increase the cash rate as long as inflation and wage pressures are subdued. Inflation could rise to 2% around the middle of next year, mainly driven by supply factors such as rising oil prices, supply chain disruptions and rising transportation costs. On the other hand, as long as there is a large share of the casualised workforce and underemployment issues, the rise in the wage price index will be sluggish."

Jakob B. Madsen, University of Western Australia: "They cannot keep the interest rate low forever – the ageing population will further reduce saving."

Jonathan Chancellor, "Despite some recent positive economic data, the erratic recovery from the pandemic will likely mean the next rate rise will be in 2023."

Dale Gillham, Wealth Within: "Whilst our economy is growing, it is growing slowly, and in the current COVID-19 situation, the RBA would most likely be more cautious about raising rates too quickly."

Brodie Haupt, WLTH: "We have seen a number of institutions increase their longer term fixed rates recently, but after the recent lockdown in Melbourne and the most recent COVID-19 outbreak in Sydney and Brisbane, I can't see the RBA increasing rates any time soon due to the uncertainty that exists, especially with the rate of vaccinations in Australia still being so low. However, I don't think they will be sticking to the 2024 date that was previously stated by the reserve bank. Dare I say it, that COVID-19 could potentially have some positive effects from a consumer's perspective in this scenario by delaying the aggressive cash rate hikes that have been predicted."

Other participants: John Hewson, ANU; Geoffrey Harold Kingston, Macquarie University.

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