Economists expect the rebound in economic activity during the final three months of 2021 was even stronger than first thought after new figures showed a smaller-than-expected decline in exports in the quarter.
Reserve Bank of Australia governor Philip Lowe said the Australian economy has remained resilient in the face of the Omicron variant.
But he warned the war in the Ukraine is a “new major source of uncertainty”, particularly in terms of inflation with the prices of many commodities having increased further since the Russian invasion.
The RBA board left the cash rate at a record low 0.1 per cent following Tuesday’s monthly board meeting.
Dr Lowe reiterated the board will remain patient before lifting the cash rate to ensure inflation is sustainably within the two to three per cent target.
“There are uncertainties about how persistent the pick-up in inflation will be given recent developments in global energy markets and ongoing supply-side problems,” Dr Lowe said in a statement.
Meanwhile, economists are now predicting Wednesday’s national accounts for the December quarter will show the economy grew by closer to four per cent, rather than an earlier estimate of around three per cent.
This is a sharp recovery from the 1.9 per cent contraction in the September quarter, which was the result of the Delta strain lockdowns.
“Looking forward, momentum has continued into 2022, with only a mild and short-lived impact form Omicron disruptions evident in data for January,” National Australia Bank economist Taylor Nugent said.
The Australian Bureau of Statistics said the current account trade surplus declined $9.3 billion to $12.7 billion in the final three months of last year, driven by weaker exports of non-rural goods.
“Supply chain disruptions, shipping constraints and a sharp increase in freight costs continued to impact trade this quarter.”” ABS head of international statistics Andrew Tomadini said.
However, while exports of metal ores and minerals fell 28 per cent, as key markets cut production, this was partially offset by a 39 per cent increase in coal exports, as did rises in fuel and grain exports.
Economists expect exports will detract 0.2 percentage points from growth in the quarter, when they had earlier forecast a full one percentage point subtraction. Business inventories data on Monday was also stronger than expected.
However, a consumer index showed confidence among Australians soured in the past week against the backdrop of war, floods and rising COVID-19 cases in the closed-border state of Western Australia.
The weekly ANZ-Roy Morgan consumer confidence index dropped 2.6 per cent to 99.2 points, while inflation expectations surged to a new seven-year high of 5.3 per cent as petrol prices hit further record highs.
“Most of the decline took place during the latter part of the week as daily COVID cases breached 1000 in WA, massive storms battered the east coast and the invasion of Ukraine began,” ANZ head of Australian economics David Plank said on Tuesday.
The 0.2 percentage point rise in consumer inflation expectations came as Australian Institute of Petroleum figures showed the national average for petrol prices struck another record high in the past week, rising a further 1.5 cents to 180.6 cents per litre.
Meanwhile, Australia’s manufacturing sector is growing again after the disruptions caused by the COVID-19 Omicron outbreak.
The Australian Industry Group performance of manufacturing index rose by 4.8 points in February to 53.2 after a sharp decline in the December 2021-January 2022 period when Omicron was at its harshest.
An index reading above 50 points suggests the sector is expanding.
“Encouragingly, new orders were very strong and point to further strength over coming months,” Ai Group chief executive Innes Willox said.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)