– OCTOBER 2020 INSIGHTS BY THE CURVE TEAM –
- The government finally delivered a budget update full of incentives but light on spending.
- More monetary policy is expected to compliment the latest fiscal policy announcements.
- A lift in confidence from businesses and households is needed for the current monetary and fiscal settings to have their full effect.
- However there are a number of uncertainties that pose a significant threat to the outlook and the recovery that is expected to be “bumpy and uneven”.
Australian Economic Highlights
- As was expected Growth slowed sharply in the second quarter. Economic activity fell by 7% over the quarter with a 12% fall in household consumption accounting for the bulk of the decline. The outcome pushes the economy into a technical recession for the first time in almost 30 years.
- Inflation fell heavily in the second quarter as was widely expected. The headline inflation index was down 1.9% taking the annual rate to -0.3%, the first annual fall in prices since the Asian crisis in the late 90s. The only other negative read was in the early 60s. The trimmed mean was also negative, falling 0.1% over the quarter with the annual rate slowing to 1.2%. Inflation is expected to bounce back in Q3 as one-off impacts are reversed.
- The Employment data once again beat expectations with total jobs growing by 111,000 after a fall of 35,000 was expected. The participation rate unexpectedly rose but it wasn’t enough to offset the impact of new jobs on the unemployment rate, which fell 0.7% to 6.5%. The true nature of the employment market is likely to reveal itself over the coming months as government support mechanisms are slowly wound back.
- The ANZ Job ads report indicated that the rebound in jobs got back on track, with ads growing by 7.8% in September after stalling in August. Jobs ads still remain well below the pre-pandemic levels.
- Business confidence improved a touch in September rising from -8 to -4 . Business conditions also showed some improvement with a pickup across all the sub-components pushing the index up from -6 to 0. The employment index remains a concern sitting at -6.
- Consumer confidence rebounded strongly in September after the deteriorating situation saw confidence collapse in August. Near term expectations for the economy was the biggest driver over the month as all subcomponents improved. A drop in the unemployment expectations index was also a welcome development.
- After being a large beneficiary of government support measures, Retail sales stalled in August as impact from government stimulus measures waned. Total sales were down 4% over the month. Consumption more broadly remains a little weaker than total retail sales figures suggest.
- New housing finance continues to rebound as banks get back on top of loan processing times. Total housing finance improved sharply in August and September as a result with owner occupiers, including first home owners driving the bounce in new approvals.
- Australia’s trade surplus continued to fall in August after a sharp decline in July. On the upside imports are improving, rising 2%, which suggests domestic demand is slowly picking up. Meanwhile exports, especially to countries excluding China, fell for a second month. Total exports were down 4% leaving the trade balance at $2.6bln. If the trend continues, net exports will detract from growth in Q3.
- After a volatile few months, Building approvals were relatively unchanged in August, posting a 1.6% fall. Within the data, private housing approvals continue to benefit from government policy, rising 4.8%, while multi-unit approvals declined.