Daily Commentary BY THE CURVE TEAM –

First Glimpse of Budget

2nd of October, 2020

Prime Minister Morrison has laid manufacturing in six key industries as the key to Australia’s economic recovery.

The government is set to spend $1.5 billion targeted at manufacturing in medical products, resources, food and beverages, clean energy, defence and space. These areas have been identified as competitive advantages for Australia by the OECD and the World Bank.

A significant motivator for the funding will be to promote jobs, with employment currently a long way from full capacity. Funding infrastructure projects will be a primary means of doing this.

The announcement signals a shift in the government’s mandate to be much more involved in economic activity as the world economy is hit by a lack of demand. There will even be two, five and ten-year plans in place, akin to renowned communist countries in the past.

The caveat to the announcement is that the funding amounts to less than 1% of GDP. Productivity and a wholistic approach appear to be at the fore of the agenda rather than simply big spending. Red tape, industrial relations and tax policy were all cited in the announcement as needing reforming.

House prices across the country ticked down 0.2% in September. Melbourne led the falls, down 0.9%. Whether a struggling economy and slowing population growth will offset low interest rates to depress prices will be of interest over the next year.

Moody’s downgraded MyState and AMP Bank’s long-term issuer rating yesterday. MyState fell one notch and AMP two notches, so both are now Baa2, which is the equivalent to S&P’s BBB.

Both ratings reports cited a struggling economy and increased competition with record low rates as putting pressure on both banks capital positions. Although they both remain well within the regulatory requirements imposed by APRA.

Josh Stewart

Client Relationship Manager