End of Financial Year

30th June 2020

As the financial year comes to a close today, the challenges of the last two quarters poses questions for what lies ahead.

The Covid-19 crisis has been the largest economic shock since the GFC and arguably one of the direst in living memory. The health crisis is also far from over both domestically and around the globe, with case number still on the rise. However, with the dawn of a new financial year upon us, the Grattan Institute has published a paper on the outlook for the recovery.

One of the key points they raised is that despite the shock of Covid-19 having a large impact, on a longer term horizon, inflation was already under the target band and had been for some time. Inflation has been left to the wayside in recent economic debate, as many have been arguing over the shape of the economic recovery and the types of structural reforms required to get the nation back on track.

The Grattan Institute calculates that the cumulative difference in the Consumer Price Index versus the 2% lower bound of the RBA’s 2-3% target range over the last 5 years was 0.8%. So over a 5 year horizon, we were already undershooting the bottom of the target range by 0.8%. The impact of Covid will see the divergence over medium term widen. Whether this divergence is sustained will depend on the spread of the virus and the implementation of reformist policies by government that won’t necessarily be palatable to citizens.

Looking ahead today there are a few items to see us out for the financial year. Deputy Governor Debelle will speak today at 12:30 on the RBA’s policy action and balance sheet. Data wise today we will see weekly consumer confidence and ABS payroll data as well as the May credit figures from the RBA.

Matthew Dunshea

Client Relationship Manager