Australia’s service sector has not yet received the full benefits of ending COVID-19 restrictions in the country’s largest states.
The Australian Industry Group’s performance index for services rose just 1.9 points in October to 47.6, remaining below the key 50 points that separate the decline from expansion in the sector.
It was the third month on a road the industry has been in decline.
“A more robust recovery was hampered by lingering activity restrictions, barriers to intergovernmental movement and the same disruptions in the supply of inputs that are felt in other parts of the economy,” said Ai Group CEO Innes Willox.
“Service sector companies will hope that the further lifting of COVID restrictions and an outbreak of sales as the holiday season approaches will lift the sector and see it enter 2022 from a position of strength.”
More generally, Reserve Bank of Australia Governor Philip Lowe expects solid economic growth in the December quarter following a widely expected sharp decline in the September quarter due to the COVID-19 shutdowns in NSW, Victoria and ACT.
The central bank will explain its expectations for the outlook and the scenarios the economy may face when the restrictions are eased, in its latest quarterly statement on monetary policy later on Friday.
“By the middle of next year, GDP is expected to be back on its pre-delta path,” said Dr. Lowe after this week’s monthly board meeting.
“Our key scenario is that the economy will grow by about 5.5 percent during 2022.”
The RBA had previously forecast growth of 4.5 percent next year.
While the governor said it was possible that the cash rate could rise in 2023, rather than in 2024, as previously assumed, he was convinced that the financial markets had made a mistake and expected an interest rate hike in 2022.
Last week’s stronger-than-expected inflation figures, which pushed the key underlying target to a six-year high of 2.1 per cent, sparked speculation of a rate hike sooner rather than later.
But Dr. Lowe said this was a “complete overreaction”.
The RBA wants to see inflation sustainably within its target range of two to three percent before raising the cash rate.
The bank’s latest forecast is that underlying inflation will not be higher than 2.5 per cent. by the end of 2023.
Australian Associated Press