The current Omicron variant has damaged the national economy’s chances of a quarter one rebound, according to Citi, who has cut its GDP growth forecast for the first quarter by 1 percentage point, from 2.3 to 1.3 per cent.
“In Covid terms, the start of 2022 is looking very different to the start of 2021 in Australia,” Citi economists wrote in a report to clients.
“Early evidence points to a reduction in mobility as Omicron spreads. Although we don’t expect the current outbreak to derail the economic recovery in 2022, there is early evidence that mobility has declined in recent weeks as Covid-19 cases spike, despite the fact that governments haven’t announced onerous restrictions.
“This is expected to delay the resurgence of services consumption in the near term.”
Despite this chaos, Citi economists are still expecting the RBA to raise interest rates.
“We might run out of Greek alphabet letters before Covid runs out of transmissible mutations,” Citi economists joked.
“From an economic perspective, the spread of Omicron and threat of new virus mutations means that Covid is likely to remain part of the economy for the foreseeable future.
“And while Omicron is less severe than Delta in terms of morbidity, the risk to the outlook is that higher transmissibility implies higher total case numbers and ongoing strains on supply chains and the potential for volatility in aggregate demand.”
