– March 2021 INSIGHTS BY THE CURVE TEAM –
- Economic data continues to show a resurgence in economic activity.
- Q4 GDP growth headlined a run of strong data releases over the month.
- Upside and downside scenarios for the economy remain disparate, although the downside is looking increasingly unlikely.
- Optimism must be tempered with the fact the economy remains in a recovery phase.
- The prospect of an economic expansion over the medium and long term appears very viable, but there is no guarantee high growth rates can be sustained beyond the recovery.
Australian Economic Highlights
- Growth in Australia continue 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 continues to recover much faster than most had anticipated. The re-opening in Victoria has kept momentum going in the most recent data. The latest increase of 29,100 jobs saw the employment rate fall to 6.4%. The RBA expects unemployment to have peaked and decline to 5 ½ per cent by the end of 2022.
- The ANZ Job ads continue to surge in line with employment. A further rise of 7.2% in February has taken the number of jobs ads well above their pre-crisis level as some employers look to attract new workers as the economy re-opens.
- Business confidence and conditions rose in sync over February. Confidence rose from 12 to 16, the highest level since 2010. Conditions improved from 9 to 15. All the states have largely reached similar levels, so how quickly these levels revert back to long run averages will be of interest.
- Consumer confidence has shaken off some of the lockdown induce pull back from January with a 1.9% rise in February. Exceptions for economic conditions over the next 12 months was the big driver as the Victorian lockdown ended up being much shorter than first expected.
- The month to month volatility in Retail sales has eased back in recent months. December saw a much more muted gain of 0.6% which was followed by a 0.5% rise in January. As the economy gets back to a more normal footing over the coming month, the focus will shift towards spending on services rather than on retail.
- Housing finance approvals continue to surge thanks to record low rates and government incentives. Underlying conditions are also encouraging more first home buyers to get into the market. New approvals were up another 10.5% in January with both owner occupiers and investors posting solid increases.
- Australia’s trade surplus surged to a new record high in January, breeching the $10bln mark for the first time. Demand for our exports, mostly iron ore and other bulk commodities, continues to surge, jumping a further 6% to start the year. Imports on the other hand played their role in the increase in the surplus by falling 2%. Imports of consumption and capital goods over the coming months are worth keeping an eye on.
- The tapering of the $25,000 grants under the HomeBuilder scheme looks to have contributed to a sharp fall in building approvals in January. Private housing approvals remain at an elevated levels despite pulling back 12.2% in January while multi-dwelling approvals continue to fall.