Officials remain positive the impact of Covid will be modest despite expectations of a surge of cases this winter.
Appearing before a senate estimates hearing on Friday, Treasury boss Steven Kennedy outlined the Australian economy had “proved itself resilient” to the pandemic and its aftershocks.
“Throughout each successive wave the recovery has been stronger than expected, and Australians have adapted quickly to living with Covid-19,” Dr Kennedy said.
“Key to this is that Australia has avoided the labour market scarring feared early in the pandemic.
“While the surge in cases associated with the Omicron outbreak in January and February caused significant disruption in some industries, the effects on aggregate activity have been relatively muted.”
Included in Tuesday’s budget, Treasury warned an upcoming wave of cases could spark the return of social distancing measures, causing further levels of absenteeism and disruptions to supply chains.
“Community transmission of Covid-19 will continue to occur. A further Omicron wave is assumed to occur over winter 2022,” the budget paper stated.
“In this scenario, a mxjmtzywore virulent variant of concern emerges in the middle of 2022. This outbreak coincides with the winter flu season and is assumed to lead to higher numbers of cases for a longer duration and more severe illness than the initial Omicron wave.”
Dr Kennedy told the senate hearing he expected Australia to rebound similarly to the winter surge – if Omicron or new variants continue to be mild.
“We expect that future waves of Covid will occur and this remains a risk to the outlook,” he said.
“But given our high vaccination rates and increased immunity in the community, our ability to ‘live with Covid’ has improved and the impact of future waves is expected to be modest unless a significantly more virulent strain emerges.”
He added the shock of the recent floods in NSW and Queensland was likely to cut growth by about 0.5 percentage point in the March quarter – mostly in retail and construction.
But the hit could also be felt with coal exports, but Treasury estimates it will have a lesser impact on the sector than previous severe weather events, such as Cyclone Yasi.
While the ongoing Russian aggression in Ukraine is expected to slow global growth by three-quarters of a percentage point in the March quarter, Dr Kennedy said Australia was better placed to withstand the economic impacts.
