– JULY 2020 INSIGHTS BY THE CURVE TEAM –
- Australia’s early success in containing the virus is slowly coming undone as community transitions in Victoria start to spread.
- The RBA remains committed to doing all it can to support the economy and ensure that the price and availability of credit will support any recovery.
- However, with little room left to have a meaningful impact and its measures still under-utilised, pressure is mounting on the government to steer the economy through the crisis.
- With the spread of the virus gaining pace and crossing into NSW and Queensland, the outlook for the economy is at the crossroads and the next few weeks will be crucial.
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 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.
- Employment data for May saw the unemployment rate rise to 7.1% from 6.2% and the participation rate fall from 63.5% to 62.9%. The numbers understate the impact on employment from the pandemic, as the JobKeeper wage subsidies define people as being employed despite not working. If those on JobKeeper were classified as unemployed the unemployment rate would be 11.3%.
- The ANZ Job ads report saw new job ads increase 42% in June. This coincided with the unwinding of lockdown measures across the country. The large increase leaves job ads still well below pre-pandemic levels.
- Business confidence continued to recover from April lows, with the index back in positive territory at 1. Business conditions remain negative, at -7, but are a big improvement on the previous month’s -24. These figures though are liable to fall once more as lockdown measures are reimposed across the country.
- Consumer confidence is now only 2% below the 6-month average before March. The index rose two months in a row, to be at 93.7 after slumping to 75.6 in April. The dichotomy between the perception of the next 12 months and 5 years remains, with the index for family finances and economic conditions for the next 12 months still below 80. Whereas the indices for the next 5 years are both above 100, showing individuals are optimistic about the next 5 years.
- In a positive note for the economy, retail sales rose 16.9% in May, albeit this followed a 17.7% fall in April. As JobKeeper, JobSeeker and early super withdrawals have sustained incomes despite rising unemployment, spending has been sustained. After panic buying in March and the May data, total retail spending for the past 12 months is 5.8% higher than the prior 12 months.
- Stalling credit growth continued in May, with new housing finance approvals down 11.6%. This was much worse than the market expectation for a 5.5% fall and follows a 4.6% drop in April. As new loans have slowed, refinancing has increased more than 45% over May and June.
- Australia’s trade surplus increased slightly from a revised $7.8 billion in May to $8 billion in June. This was on the back of a 6% fall in imports and 4% fall in exports, which shows our overall trade activity is and was being heavily impacted by the pandemic.
- Building approvals fell 16.4% in May after a 2.1% fall in April. As housing has many flow on effects to economic activity, the sharp fall is concerning for activity over the medium term.