Daily Commentary BY THE CURVE TEAM –

Confidence Collapses on Fear and Uncertainty

11th of March, 2020

Recent events and a deteriorating outlook are taking its toll on confidence.

The latest weekly confidence survey showed that growing uncertainty over the outlook is having a large impact on consumer confidence. Consumers are both concerned with the near term economic outlook and their own family finances. The weekly survey points to a sizeable fall in the monthly survey due out later today.

Business confidence is also falling. The business confidence index according to the latest survey has fallen to -4, the lowest read since mid 2013. It comes as only 50% of businesses are reporting an impact from the spread of Covid-19.

Conditions for businesses have held up a little better. While profitability is being hit, trading conditions are holding up ok. Importantly for the economy, the employment index remains positive which doesn’t suggest a significant impact on the employment markets is on the way. This could change as the the virus continues to spread.

On the virus, we heard from the RBA this morning with Deputy Governor Guy Debelle. He said that “the virus is going to have a material economic impact but it is not clear how large that will be.”

Importantly he said that:

“The virus is a shock to both demand and supply. Monetary policy does not have an effect on the supply side, but can work to ensure demand is stronger than it otherwise would be.”

The rational behind that statement is that when the virus does pass, prevailing condition will be positive for a robust recovery. How long the impact of the virus lasts is anyone’s guess. All the RBA could say to that is “The effect of the virus will come to an end at some point.”

David Flanagan

Director - Interest Rate Markets