ANALYSIS

Australia's economic recovery still to be impacted by the Omicron spread

Big question marks loom over how Australia's strong economic rebound can withstand the Omicron tsunami wave.

The coming year is set to bring a new era of economic prosperity for the land Down Under, with economists and politicians all spruiking booming growth and further drops in unemployment to historic lows.

But a surge of COVID-19 cases now exceeding 30,000 per day nationally drastically shows uncertainty remains about the pathway to normality.

Test times in excess of four hours and a shortage in supply of rapid antigen test signal the health system is already under strain from a boom in virus numbers.

Joselyn Muhammad and Kiescha Jamieson outside Big W at Westfield Woden pre-Christmas. The impact of the Omicron variant on the national economy is uncertain. Picture: Sitthixay Ditthavong

Joselyn Muhammad and Kiescha Jamieson outside Big W at Westfield Woden pre-Christmas. The impact of the Omicron variant on the national economy is uncertain. Picture: Sitthixay Ditthavong

The World Health Organisation has also flagged hospitals globally would feel additional pressure from the growing Omicron surge.

In Europe, the rise in new infections has already seen continental governments bring back certain restrictions to alleviate stretched healthcare systems.

However, the majority of economic predictions remain upbeat.

The Mid-Year Economic Fiscal Outlook outlined in December by Treasury, anticipated greater economic activity - free from lockdowns - would see the financial years of 2021-2022 and 2022-23 grow 3.75 per cent and 3.5 per cent, respectively.

Nominal GDP for 2021-22 was estimated to soar by 6.5 per cent.

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Treasury's most up-to-date forecasts also include further tightening of the labour market and by the end of next year expected to see an unemployment rate in the low per cent range.

That would be the first time since the 1970s where the sustained unemployment rate sat below 5 per cent.

This has significant benefits for governments. More people in the workforce means greater tax receipts and upward pressure on wages, a force the Reserve Bank is keeping a close eye on.

RBA governor Philip Lowe has signalled the central bank's monetary policy decisions, which includes lifting interest rates, would be influenced stronger than current wages growth and an uptick in inflation.

The RBA is likely to consider a cash rate hike when inflation is within its target range of 2 to 3 per cent.

The current consumer price index, which is the main measure of inflation, sits at 3 per cent for the September quarter. However, the central bank remains cautious the lockdowns are manipulating the numbers.

NAB Economics in December flagged the rise of Omicron was a front and centre threat to destabilising the recovery.

"While we are optimistic (as is the RBA) on growth over the next year or so, a number of uncertainties remain, including the risk from the Omicron variant," the economics department of the major bank said in a preview.

Rising cases will stress both the health and economic frameworks and a looming federal election fight could see Omicron cash splash promises as the dangling carrot to win votes.

This story Omicron uncertainty sparks big question marks over economy first appeared on The Canberra Times.