Could the economy be set for a Christmas miracle?

Finally, we have actually entered into a race to tackle COVID-19 and we should know the answer before Christmas.

However, the race is between two complementary but different approaches – both being urgently and earnestly pursued – of reducing case numbers through conventional social distancing lockdowns and through vaccination.

The lockdown approach worked slowly but effectively in Australia against earlier variants of the virus but the very large breakout in New South Wales, which has returned into Victoria and even as far away as New Zealand, means the jury is still out on whether this will work again against the more contagious Delta variant.

Delta is a tough opponent but vaccinations are taking off

At the same time, the bungled and super slow vaccination push is finally gathering pace – boosted by stocks of vaccine finally due to arrive at more than a trickle in September and given much more urgency by the fact that the virus is circulating and that younger people will finally be encouraged and allowed to vaccinate.

From an economic viewpoint, it is easy to get very gloomy about the current state of affairs with jobs and businesses wilting and activity deliberately being crushed by lockdowns across the major population centres of Sydney and Melbourne.

However, the lesson we learned last year is that the economy can quickly roar back into life once the shackles are removed – something that at current projections of vaccination coverage should happen from mid-October onwards.

Last year showed how fast the economy can recover

While that recovery picture is clouded by the political debates between some of the states and the federal government about the pathway out, it is fairly clear that by late October to early November we should be on the way back to a new COVID-normal way of life.

That may still include precautions such as masks and QR code sign-ins but progressively, there should be more freedoms to reopen businesses.

Last year was a great example, with the June quarter being a disaster with the weakest gross domestic product (GDP) figures on record at a negative 7%, but a few months later pre-Christmas retail sales were up 11% on the previous year in November and December.

Low rates, lots of stimulus and pent-up savings still flowing

It is worth remembering that many of the factors that led to that sharp bounce-back last year are still operating this year with interest rates very low, government stimulus still flowing through the economy – albeit at a slightly lower level – and some pent-up savings and demand from people who have been cooped up and not spending on big ticket items such as overseas travel all the way through to commuting.

While individual circumstances vary and some people will be really struggling after repeated lockdowns, household savings balances are still predicted to be very strong as the year draws to a close, reaching as much as $200 billion.

Offshore vaccination recoveries encouraging

If we look overseas there are countries such as the United Kingdom and United States that have seen surging consumer spending and strong economic growth even with continued high COVID-19 infection rates due to the confidence of having a large percentage of the population vaccinated.

Things may be a little slower here, particularly if consumers are wary of hitting the shops, restaurants and cinemas for a while, but once confidence returns, it could do so with a rush.

Which is why even as we seem mired in a spirit-sapping lockdown and economic slowdown at the moment, there is every reason to believe that the economic recovery in a few short months could be surprisingly quick.

There may be a couple of quarters of negative growth to contend with – in other words, a recession – but the recovery could be stronger than you can imagine amid the current COVID-19 gloom.