Economy re-emerging from COVID despite uncertainty

Economic wrap up September quarter 2021

By Dr Siddharth Shirodkar, Principal Economist, IBA

The Australian economy contracted by 1.9% in the September quarter 2021, reflecting the significant lockdowns in NSW and Victoria to stem the spread of the Delta variant of COVID-19. Lockdowns resulted in an uptick in unemployment to above 5%. But the effect may prove temporary as the economy is expected to bounce back in the December quarter, once restrictions were progressively lifted after vaccinations rates hit critical thresholds (stay tuned on this though – a constantly changing paradigm).

The emergence of the Omicron variant has reintroduced greater uncertainty. And whilst governments have displayed a reticence to reimpose lockdown, consumers may display some temperance in relation to holiday travel leading into Christmas and the new year.

Inflation remains higher than over the last few years, primarily spiking because of imported price rises from the rest of the world. The price rises reflect global supply chain shortages, higher fuel prices and higher construction costs. The international border closures for much of 2021 have also placed upward pressure on domestic inflation, resulting in significant vacancies across the economy.

Tourism related industries and manufacturing are particularly affected by vacancies. But labour market tightness has also led to some welcome increases in local wages. The Reserve Bank of Australia (RBA) has shown no indication of responding to rising prices. The RBA is not raising the cash rate from historic lows (0.1%) any time soon, as they only expect underlying inflation to reach the middle of the 2-3% band by 2023.

The increase in house prices is increasing equity amongst existing IBA home loan customers, leading to high levels of refinancing with commercial lenders – our highest on record at 392 for FY20-21. When our customers refinance to a mainstream bank, we have more money available to other Aboriginal and Torres Strait Islander people to achieve their home ownership dreams. Find out more about our banking partnerships.

Strong dwelling price rises are having housing affordability implications for all Australians, including future Indigenous home loan customers. The medium house price in Australia is now eight times higher than median household incomes, compared to a level of around six times higher over much of the last two decades.

Supply shortages in construction have hampered growth in available housing stock, which means affordability pressures are unlikely to alleviate soon. But the rate of growth in prices is slowing. IBA business customers will continue to benefit from easy monetary conditions, particularly as the economy opens and construction and services returns to normal (the Indigenous business sector’s two largest categories).

Are you interested to find out if home or business ownership is right for you? Visit iba.gov.au.?

Disclaimer: The information contained in this material is general and not tailored to your particular circumstances. The information may have changed since the material was prepared. IBA takes no responsibility for any damage or loss suffered by you in relying on the information in this material and no representation or warranty is made as to its fairness, accuracy or completeness. If you are eligible and decide to apply for financial assistance from IBA you should obtain independent financial and legal advice before signing any documentation.