CANBERRA, AAP – Economists at a major Australian bank have slashed their economic growth forecast for the March quarter to zero due to the impact of the Omicron variant on activity.

Westpac has raised its growth forecast for the December quarter 2021 to 2.6 per cent from 2.2 per cent, partly reflecting the 12 per cent boost to retail sales in October and November as Delta strain lockdowns were removed.

“In contrast, our own high frequency credit and debit card data for the first few weeks of January is pointing to a marked fall in consumer spending over that period which can be attributed to the Omicron shock,” Westpac chief economist Bill Evans said.

“With confidence-related spillovers to business investment and inventories in January we have marked down our forecast growth rate in the March quarter from a robust 2.3 per cent to zero.”

Growth for the full year is now forecast at 5.5 per cent rather than 6.4 per cent.

The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, rose to minus 0.15 per cent in December from minus 19 per cent in November.

Mr Evans said the index remains in slight negative territory due to the high degree of uncertainty around the near-term outlook, due to the spectacular spread of the Omicron variant of COVID-19.

Still, Westpac and others are expecting the Reserve Bank of Australia to start lifting the cash rate in August after recent data indicated the central bank’s goals for inflation and employment are being achieved.

Last week the December unemployment rate fell to 4.2 per cent, a year earlier than the RBA had been expecting.

Earlier this week, the consumer price index for the December quarter unexpectedly jumped to 3.5 per cent and above the RBA’s two to three per cent inflation target.

Importantly, underlying inflation – which smooths out wild price swings and is more aligned with the setting interest rates – rose to 2.6 per cent, its highest level since 2014, and again a level the RBA had not expected until the end of 2023.

The RBA will hold its first board meeting of the year on Tuesday.

The Australian Bureau of Statistics will release its import and export price indexes for the December quarter later on Thursday.