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Economy set to contract in September but house prices will still increase: Westpac

Following the sharp increase in new COVID cases in greater Sydney over the last week or so, Westpac has revised its previous forecast for the timing of the end of the lockdown in Sydney.

Key Points from Westpac’s Chief Economist Bill Evans

  • Initially, Westpac believed the lockdown would end on the 20th of August, but they have now extended that to the 30th of September
  • The construction sector will only operate at 60 per cent capacity over that period
  • The growth rate of the NSW economy will fall to -7.8 per cent and that will impact national growth right down to -2.2 per cent.
  • They expect to see a strong recovery in Sydney – and greater NSW in the December quarter with October being a month of staggered re-opening of the economy, rebounding by 5.8 per cent
  • The key factor in recovery will be a sharp increase in vaccinations by the December quarter, meaning the government will need to push supply as demand increases
  • While the labour market is strong coming into lockdowns there will still be around 200,000 jobs lost that and around 90 per cent of those will be regained in the December quarter
  • The unemployment rate – currently 4.9 per cent is likely to lift to 5.7 per cent by September but come back to 4.8 per cent by the end of the year; Westpac are predicting unemployment may get to around 4 per cent by the end of 2022.

The Reserve Bank meets next week (August 3)

  • Westpac still believes the RBA is on track to raise interest rates in the first quarter of 2023 and there will be a revised set of forecasts based on the current circumstances and an expected contraction in the September quarter.
  • In the minutes from the last RBA meeting they talked about needing to be flexible with their bond purchase policy – depending on prevailing economic conditions
  • At the moment their commitment is to cut back their purchases from 5 billion a week to 4 billion a week at the beginning of September. Westpac believes they should reverse that and immediately lif their bond purchases for the remainder of August 2021 and hold that until November.
  • Mr Evans says he would like to see this new flexible policy support the government in dealing with the economic impacts of the current lockdowns.


  • Mr Evans says that Westpac believes Sydney house prices can still increase around 6 per cent to the end of this year
  • This will have Sydney house prices up by 22 per cent in 2021
  • Nationally they are expecting that house prices will lift by 18 per cent, up from their original 15 per cent forecast in February.
  • They are expecting some momentum to continue into the first half of the year – and all other things being equal – vaccinations up, economic recovery evident it is possible we will see some macroprudential intervention in this.
  • Mr Evans believes the ‘signal’ for this intervention will be housing credit growth reaching around 7 per cent
  • At this point (the second half of 2022) housing prices will flatten out.
  • Then when the RBA starts to raise rates in the first quarter of 2023 housing prices will be expected to come down by 5 per cent.

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Samantha McLean

Samantha McLean is the Co-Founder and Managing Editor of Elite Agent and Host of the Elevate Podcast.