Daily Commentary BY THE CURVE TEAM –

RBA Outlook Fading

10th of August, 2020

The RBA’s confidence in the outlook has faded as virus fight continues.

It comes at no surprise that the RBA’s forecasts since the start of the year have been significantly altered over the past 6 months. However, with the lockdown in Victoria back in full force and the economy unable to fully reopen until case numbers are back under control they have been forced to revise their forecasts once again.

As they have done in recent updates, the August SoMP provided both baseline forecasts as well as upside and downside scenarios. Understandably the RBA are extremely reluctant to provide a single outlook when so much of the forecast trajectory of key economic variables is reliant on health and political factors.

The headline GDP forecast is for 6% declines in the recent June and December halves of 2020 before a bounce-back in June 2021 (4%) and December (5%). However, the forecasts compared to the April SoMP see a 3% reduction in June 2021 (7% vs 4%) and a 1% reduction in the later year forecasts.

Unemployment is also expected to rise to 10% by December 2020 (revised up from 9%) and remain elevated for longer with the later forecast years all 0.5-1% higher. The impact of the prolonged unemployment is arguably the most concerning element of the forecasts. It appears the “scarring” the RBA often talks about will see long term unemployment rise and remain elevated.

The statement and the RBA’s scenarios will be analysed more closely in tomorrow Curve Monthly Insight for August.

Looking ahead this week, key data releases will be the Nab Business Survey tomorrow, Westpac Consumer Confidence and Wage data out on Wednesday and Labour Force data out Thursday.

We will also hear from the RBA once again on Friday when Governor Lowe Testifies before the House of Representatives Standing Committee on Economic. Given their revised employment forecasts and the data out Thursday he will undoubtably be asked about the RBA’s view on the unemployment and the scarring effect from Covid-19 on the labour force.

Matthew Dunshea

Client Relationship Manager