In a Q4 outlook update, Andrew Pease, Russell Investments head of global investment strategy, said that the local economy will “return to life” as restrictions are eased in October and November.
Mr Pease said that a strong recovery will be facilitated by consumer and business sheets which have continued to stay healthy and that the reopening of the international border will provide an additional boost.
“Fiscal policy has supported the economy through the downturn and there is potential for further stimulus in the lead-up to the federal election, which is due before the end of 2022,” Mr Pease said.
“The Reserve Bank of Australia (RBA) has begun the process of tapering its bond-purchase program, but we expect that a rise in the cash rate is unlikely until at least the second half of 2023.”
On a global scale, it is expected that as COVID-19 vaccination rates rise, more economies will continue to reopen throughout the remainder of 2021.
Russell Investments noted that one of the biggest risks for the global market is the central banks’ response to inflation. It predicts that spikes to inflation this year are “mostly transitory” and that the major banks are still two years off from raising interest rates.
“Inflation may remain high over the remainder of 2021 but should decline in early 2022,” Mr Pease said.
“This means that even though the US Federal Reserve (Fed) is likely to begin tapering back on asset purchases before the end of the year, rate hikes are unlikely before the second half of 2023.”
Earlier this month, the international think tank Organisation for Economic Co-operation and Development (OECD) called for a review into the RBA due to its failure to meet economic targets, including inflation, over the last few years.
