Reserve Bank governor Philip Lowe has used his annual address to the Anika Foundation to expound on the many woes of Australian small business, warning “there is a limit to how long they can wait” for business to return to normal.
Lowe said many businesses are currently in “wait, survive and see mode”, and as a result the economy will contract “significantly” during the current quarter.
“It would not be surprising to see unemployment in the ‘high fives’ for a short period of time”, he warned.
“The exact magnitude of the economic contraction in the September quarter remains to be determined but it is likely to be at least 2 per cent, and possibly significantly larger than this. This is a major setback, but it is likely to be only temporary,” he said.
“We expect the economy to be growing again in the December quarter, with the recovery continuing into 2022.”
“Delta is delaying progress, but it is not expected to derail our resilient economy,” he said.
Lowe, like many, pointed to vaccines as a “clear path out of the current difficulties”, forecasting a “return to a strong economy next year.”
As the likes of Harvey Norman experience record profits, the RBA chief contrasts these with “
many small and medium-sized businesses facing very difficult conditions … having experienced a large drop in revenue.
“Government assistance is helping,” he continued, “but the longer they have to wait before reopening, the more difficult things will become and the greater the potential damage to this important part of the economy.
“For some businesses, there is a limit to how long they can wait. So the sooner we can open safely the better.”
Lowe struck out at predictions that the cash rate would be lifted to 0.25 per cent by the end of next year, reaching over 1 per cent by the end of 2024.
“These expectations are difficult to reconcile with the picture I just outlined and I find it difficult to understand why rate rises are being priced in next year or early 2023,” he explained.
“While policy rates might be increased in other countries over this time frame, our wage and inflation experience is quite different.”
