– AUGUST 2020 INSIGHTS BY THE CURVE TEAM –
- Hopes of a swift recovery from the Covid-19 pandemic are slipping away based on the latest update from the RBA .
- The second wave of the virus in Victoria is only part of the problem with the scars of the current crisis to be with us for some time.
- Risks are still skewed to the downside with the RBA’s baseline scenario still looking too optimistic.
- Despite the current settings of monetary policy remaining unchanged, the RBA is buying government bonds again amid calls for further policy support.
Australian Economic Highlights
- Growth for the first quarter dipped 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 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 last 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 for June saw total employment jump 210,800 people as the economy continued to reopen. Despite the jump, the unemployment rate continued to climb, hitting 7.4% as people started to re-enter the workforce (participation rate up 1.3% to 64%). The official statistics continue to be distorted by government policies with the true level of underemployment closer to 20%.
- The ANZ Job ads report saw new job ads continue to rebound from their crisis lows, rising a further 16.7% in July after rising 41.4% in June. Despite the solid bounce job ads are still significantly below pre-pandemic levels.
- Business confidence soften in July, even before Victoria announced the stage 4 lockdowns with the index falling from 1 to -14. Business conditions improved again with the index climbing from -8 to 0 as the country continues to slowly reopen. However that could change as the fallout from the escalation in Victoria ripples through the economy.
- After rebounding from the April lows, consumer confidence has started to soften once again as the second wave of the virus has taken off in Victoria. Interestingly, consumers still tend to look more favourably at their own finances, thanks to government support measures, while holding greater fears over the outlook for the economy. This could change as support measures are tapered in coming months.
- Retail sales continued some of the momentum experienced in May with another reasonable rise in June where total sales climbed 2.7%. While sales have bounced back strongly it will do little to help growth. When adjusting for inflation, total retail sales actually fell for the quarter. It is likely overall consumption for the quarter will be much worse than the 3.4% decline retail sales suggests. This is due to the fact spending on services makes up a larger chunk of household consumption and would have experienced a far more acute decline during the quarter.
- New housing finance approvals showed some signs of life in June as the economy continued to reopen. The value of Owner Occupier approvals were up 5.5% with investor approvals up 5.5%. Both measure remain well below pre-pandemic levels.
- Australia’s trade surplus remained elevated in June with exports continuing to outstrip imports by a considerable margin. The trade surplus came in a touch above $8bln, exports rose 3% and imports were up 1%.
- Building approvals remain in free fall as the economic outlook sours. Total approvals were down a further 4.9% in June and have fallen for 4 straight months. Concerns are growing over what will happen to the construction industry once projects currently underway come to completion.