– SEPTEMBER 2020 INSIGHTS BY THE CURVE TEAM –
- After a world record run of almost 30 years of uninterrupted growth, Australia is now officially in a recession.
- There was one sector of the economy that accounted for almost the entire decline in growth over the quarter.
- That same sector also holds the key to the outlook.
- This month also saw the first change to monetary policy settings since the RBA’s emergency board meeting back in the middle of March this year.
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 for July saw total employment jump 114,700 people as the economy continued to reopen. Despite the jump, the unemployment rate continued to climb, hitting 7.5% as people started to re-enter the workforce (participation rate up 0.6% to 64.7%). The official statistics continue to be distorted by government policies with the true level of underemployment closer to 20%.
- The ANZ Job ads report indicated that the rebound in job advertisements stalled in August with a soft 1.6% rise after increases of 41% and 19.1% the previous 2 months. Job ads remain 27% below their pre-crisis level.
- Business confidence continues to drift lower after initially recovering from the sharp fall at the outset of the pandemic. The improvement in Business conditions has proved short lived with it falling back into negative territory. The big concern was the big driver behind the fall in conditions was the employment index which dropped from -2 to -13.
- After rebounding from the April lows, consumer confidence has continued to fall. After falling 6.1% in July, confidence fell a further 9.5% in August according to the monthly survey. The biggest concern from the survey is the rise in the unemployment index indicating that consumers fell less secure with their employment which is a bad sign for the outlook for consumption.
- Retail sales remain the main beneficiary from the governments support program. Retail sales were up a further 3.2% in July to be up 12% over the past year. As was evident in the GDP figures, the collapse in spending on services continues to outweigh the increase in retail spending.
- 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 narrowed sharply in July, falling from more than $8bln to $4.6bln. The outcome was driven by a sharp rise in imports, up 7%, which was encouraging, however exports were down 4%.
- Building approvals jumped 12% in July thanks to an 8.5% jump in private housing approvals in a sign that the governments Homebuilder program is having some impact on the outlook for the construction industry. The big question remains will the pipeline of new activity be enough to fill the gap created by current projects coming to completion.