– JUNE 2020 INSIGHTS BY THE CURVE TEAM –
- Containment measures continue to be rolled back and the data suggests that the worst is now behind us.
- Monetary policy once again remained unchanged over the month with the RBA remaining “committed to do what it can to support jobs, incomes and businesses.”
- In his appearance before the Covid-19 Parliamentary Committee, Governor Lowe spoke candidly about how much more room monetary policy has left and what else the RBA could do if required.
- He also voiced concerns over the long run prospects for the economy if unemployment remains high for too long and if structural issues facing the economy weren’t addressed.
Australian Economic Highlights
Growth for the first quarter dipping into negative territory, falling by 0.3% with the economy slowing as Covid-19 containment measures ramped up. It means with the second quarter expected to be deeply negative, the Australian economy is in the midst of its first technical recession in almost 30 years.
Inflation was largely in line with expectations in Q1. Headline inflation rose 0.3% taking the annual rate to 2.2% while the trimmed mean was up 0.5% with the annual rate edging up to 1.8%. Prices are expected to fall in Q2; however, core inflation is expected to remain positive.
The April Employment data saw almost 600,000 jobs lost as was widely expected. However the unemployment rate didn’t rise anywhere near as much as expected thanks to a fall in the participation rate. The unemployment rate rose to 6.2% while the participation rate fell heavily from 66% to 63.5%. As the economy re-opens and people start looking for work again the participation rate could rise, taking the unemployment rate with it.
After falling by a record 53.1% in April, the ANZ Job ads report marked time by comparison in May, rising by 0.5%. Weekly data suggests that new jobs ads are slowly returning as the economy re-opens. However the level of job ads still remains well below pre-crisis levels.
Business confidence continue to improve from the record lows recorded in March with the index now up to -20. Despite the recovery, confidence across all industries still remains very low. Business conditions improved with the index up from -34 to -24. The big concern from the survey was that the employment index which continue to hover around its record low, only up 3 points from the previous month.
As was flagged by the weekly consumer sentiment reports, Consumer confidence fell sharply in April with the index falling by 17.7% to 75.6. What was surprising was the sharp move around expectations pertaining to the housing market. This poses a big risk to the outlook given how critical housing is to the performance of the broader economy.
- After benefiting from the pre-lockdown tailwind of panic buying, Retail sales fell heavily in April, more that offsetting the March surge. Total sales were down 17.7% for the month. More recent data suggests that sales are slowly recovering as the containment measures are rolled back but remain below pre-crisis levels.
- Housing finance was mixed in March as the virus containment measures ramped up. Owner occupier finance continues to increase while investor credit continues to decline. Falling housing turnover could see new housing finance slow sharply in the months ahead.
- Australia’s trade surplus remained elevated in April as the fall in both exports and imports kept pace with each other. The trade balance sat at $8.8bln in April, down from, $10.6bln as imports fell 10% and exports fell 11%.
- Building approvals continue to drift lower rather than collapse as many had anticipated. Total approvals were down 1.8% with private housing approvals actually rising 2.7%. Approvals had already fallen heavily ahead of the economy slowing but fears are there will be no new projects coming on line to replace completing ones as the months roll on.