– May 2020 INSIGHTS BY THE CURVE TEAM –
- The focus is quickly shifting from the containment of Covid-19 to winding back the containment measures and opening up the economy.
- Monetary policy remained unchanged over the month with the RBA remaining “committed to do what it can to support jobs, incomes and businesses.”
- In their quarterly Statement on Monetary Policy the RBA revealed their latest forecasts as well as other scenarios.
- Given the unprecedented nature of recent events, there is considerable uncertainty over the outlook with the RBA facing a great unknown.
Australian Economic Highlights
Growth ticked up slightly in Q4 for 2019 printing at 0.5% for the quarter bringing the annualised rate to 2.2%. Despite an indication that growth may be at a gentle turning point recent events could see large changes when Q1 data arrives.
Inflation was largely in line with expectations in Q1. Headline inflation rose 0.3% taking the annual rate to 2.2% while the trimmed mean was up 0.5% with the annual rate edging up to 1.8%. Prices are expected to fall in Q2; however, core inflation is expected to remain positive.
Job loses as a result of the shutdowns weren’t captured in the March Employment data due to the timing of the survey. Total employment growth was 5,900 which saw the unemployment rate edge up to 5.2%. The market is expecting the April figures to show that 550,000 jobs were lost in April taking the unemployment rate up to 8.3%.
ANZ Job ads report fell by a record 53.1% in April, almost 5 times the previous biggest fall seen in the survey since its inception. While the number of jobs ads has stabilised over the past couple of weeks, the true test will be when the economy starts to re-open to see how many new jobs will be available for those who have lost theirs as a result of the shutdowns.
Business confidence rebounded in April after the disastrous March reading. The index is up 19 points to -46 however is still twice as week as the trough seen during the 1991 recession. Business conditions fell heavily in April with large falls seen across every sub-component. The fall in the employment index and capacity utilisation are of significant concern with NAB saying it “could well see further restraint on business investment going forward.”
As was flagged by the weekly consumer sentiment reports, Consumer confidence fell sharply in April with the index falling by 17.7% to 75.6. What was surprising was the sharp move around expectations pertaining to the housing market. This poses a big risk to the outlook given how critical housing is to the performance of the broader economy.
- Retail sales benefited from the huge demand for food ahead of the lockdown with supermarket sales soaring. It saw retail sales post a massive 8.5% gain in March. Despite the bounce, sales volumes for the quarter were still only up 0.7%. Sales are expected to be much weaker in April.
- Housing finance was mixed in March as the virus containment measures ramped up. Owner occupier finance continues to increase while investor credit continues to decline. Falling housing turnover could see new housing finance slow sharply in the months ahead.
- Australia’s trade surplus ballooned to a record $10.6bln in March as exports surged 15% and imports fell 4%. The huge surplus will help offset the smaller surpluses in January and February and will add to growth for the quarter.
- Building approvals eased back in March, falling by 4% which was slightly better than expected. While multi unit dwelling approvals remain volatile, private housing approvals remain soft.