– February 2021 INSIGHTS BY THE CURVE TEAM –
- Two key government programs – JobKeeper and HomeBuilder ended as of March 31.
- The economy is expected to hold up in spite of this.
- Employment in particular continues to overdeliver, with the economy having regained all the jobs lost during Covid.
- Other variables, namely dwelling approvals and lending may face headwinds ahead.
- More consequential will be where these levels normalise, as this will indicate what economic activity is sustainable.
Australian Economic Highlights
- Growth in Australia continues to rebound into the end of the year positing a second consecutive increase above 3% in the Q4. The recovery in growth continues to be driven by consumption, which was also the hardest hit component of growth during the Covid downturn. GDP is expected to return to pre-Covid levels by the middle of the year and grow by 3 ½ per cent in 2021 and 2022.
- Inflation continued to recover over Q4, up 0.9%, which was the same read for the annual rate. Childcare continued to be an outsized factor following the unwinding of free childcare. Inflation will be coming off a low base so may appear high in the near term, but sustained upward pressure is still a way off given the RBA’s forecasts for unemployment.
- Employment continued its remarkable recovery with a gain of nearly 89,000 jobs, with the bulk of them full time jobs. This was well above expectations again and leaves employment higher than pre covid. The unemployment rate is now 5.8%, higher than the RBA would like and may face headwinds as JobKeeper ended at the end of March.
- The ANZ Job ads continue to follow employment growth, up another 7.4% in February after a revised gain of 8.8% in February. They are now 23% higher than pre covid levels.
- Business confidence and conditions remain at elevated levels. Conditions have hit a new record for the index, up 8 points in March to be 25. The employment index was particularly strong, up 7 points to 16, which bodes well for the end of JobKeeper. Confidence was down 3 points but remains very high at 15.
- Consumer confidence increased again, up 2.6% for March to be 111.8. Gains were broad based across the index, which bodes well for the likelihood that consumers will spend their high levels of savings.
- Retail sales eased over February, down 0.8%. Lockdowns in WA and Victoria acutely effected spending, with sales falling in WA and Victoria 5.4% and 3% respectively. Sales are still well above pre-covid levels.
- There was a change in trajectory for housing finance approvals, down 0.4% for February following a 10.5% gain in January. Approvals are still up 55.2% for the year, so a slight fall on January levels still amounts to a large gain in approvals. Where owner occupied loans have dominated the growth, which likely links to the HomeBuilder grants, investor loans dominated the month, up 4.5%. Should the end of the HomeBuilder scheme limit owner occupied loans then this trend may continue.
- Australia’s trade surplus pared back over March following a record in February. The surplus dropped to $7.5 billion from a revised $9.6 billion. Exports were down 1% from commodity falls and imports were up 5%, which reflects a pick-up in domestic demand.
- The imminent end of the HomeBuilder scheme which still had grants of $15 000 available in February saw a strong bounce back in building approvals in February. Following a 19.4% drop in approvals in January, they bounced 21.4%. Private detached housing approvals were up 15.1% over the period which follows the strong gains in loan approvals for first home buyers.