Is Australia off course? Delta delays the growth recovery

CIO MONTHLY | SEPTEMBER 2021

After a sharp rebound during H1 2021, Australia’s near-term economic outlook has worsened significantly. The COVID-19 Delta outbreak has extended across the eastern seaboard, with much of the population under severe mobility restrictions. This suggests Australia’s growth in H2 2021 will take a significant hit.
In this article, we explain that, while Australia has been pushed off course in H2 2021, a rapidly accelerating inoculation path suggests targets for eased restrictions and re-opening will be met during the final quarter of 2021. Beyond this, we expect a strong growth recovery to resume in H1 2022.


  • With mobility restrictions likely to extend into Q4, we expect a weak pace of growth in H2 2021, but that this will give way to a renewed strong recovery in 2022. After a 2-3% fall in annualised growth in H2 2201, we expect a return to 5-6% growth in H1 2022, similar to the pace seen during the first half of this year.
  • Key drivers of a growth rebound in H1 2022 include an accelerating pace of vaccination; consumer spending rebounding as the economy re-opens; a global growth backdrop remaining strong; and very supportive policy from the Reserve Bank of Australia.
  • Despite this, data is likely to deteriorate noticeably in the months ahead before a recovery path is restored, and the pace of recovery may not be as swift as it was after the first lockdown. This could weigh on some sectors, such as travel and entertainment, and slow the return to offices in central business districts.
  • Consumer spending is expected to rebound in the lead-up to Christmas, supported by elevated savings rates, above-average consumer sentiment and strong hiring intentions. We also expect housing activity to pick up in 2022 as price growth ebbs.
  • We continue to hold a modest overweight allocation to domestic equities in our regional equity tilts. However, given the hit to the growth cycle in H2 2021, the earnings per share upgrade cycle is likely nearing its peak. This suggests greater emphasis on style and sector rotation. We continue to believe investors should overweight COVID-9 losers, and strategically we are positive on healthcare, given it tends to outperform in slowdowns and in time will also be a post-pandemic beneficiary.