Daily Commentary BY THE CURVE TEAM –

Business Conditions and Confidence Move Past Lows

10th of June, 2020

Business conditions and confidence rebounded off recorded lows but concerns over the outlook remain.

As the economy begins to reopen and peoples lives start have some resemblance of normality it was to be expected that the record declines in business conditions and confidence would be somewhat unwound. Whilst both metrics have risen from their all-time lows in April retracing a significant proportion of their declines, both are still deeply negative. Condition rising 10pts to -24 and confidence rising 45pt to -20. To put those figures in perspective confidence hit a low of -30 during the GFC and a low of -23 during the last recession in 1990.

One key item in the survey that failed to move significantly was the employment index and with so much of the medium-term outlook tied to the level of employment that is certainly of concern. The employment index for May rose a measly 3pb to -31 the second worst reading in the data series after last month.

With data weak domestically despite Australia as a nation being one of the least impacted health wise from the crisis, data on a global scale is considerably weaker. Overnight the World Bank published its “Global Economic Prospects Report” headlined by a forecast of the global economy to shrink by 5.2% in 2020.  A spokesperson from the bank stating:

“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” and that we need to “unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment.”

If we take the word global out of those sentences the remarks could have easily been attributed to some of our local politician and industry leaders in our developed nation. So the outlook in more developing nations on the back of this health crises is likely to be considerably worse.

Looking ahead today we have a full calendar with Consumer confidence out this morning followed by loan approvals midday. In the US tonight we will get both their CPI release and a meeting of the Federal Reserve with new forecasts and speech. Later today Curve will also be releasing our June Monthly Insight with a deep analysis of the recent testimony of RBA Governor Lowe before the Senate committee on the Covid-19 Impact.

David Flanagan

Director - Interest Rate Markets