Daily Commentary BY THE CURVE TEAM –

Uncertain Outlook Persists

9th of July, 2020

Uncertain Outlook Persists

As Victoria locks down, the speed and nature of the economic recovery remains highly uncertain.

Australia’s economic recovery hinges on lockdowns unwinding. Victoria reimposing lockdown measures following a spike in Covid-19 cases is a major setback for the economy.

How frequent and widespread these reimposition of lockdown measures will be is unpredictable. It makes forecasting economic activity over the near term extremely difficult. It also makes government policy very difficult to implement.

A key policy implemented early in the pandemic was the JobKeeper and JobSeeker subsidies for those without work. On July 23, the government is set to announce whether these programs will continue. Prior to Melbourne locking down, reports indicated that there would be an unwinding of these measures. Today though, there are suggestions these programs will be maintained in light of the Melbourne lockdowns.

These wage subsidies have been a boon for personal incomes even as unemployment has spiked. Early super withdrawals have also been utilised more than initial forecasts, with $7.6 billion being drawn down in the first week of July when a second allotment was allowed. This takes the total amount drawdown to $27 billion.

Although these measures will undoubtedly assist in the short run economic recovery of the country, how sustainable these policies are and what the long term recovery looks like is largely unknown. Data out today on housing finance approvals will give some indication of the longer term health of the economy, as credit stimulates general economic activity.

In April, total outstanding credit went backwards for the first time since the GFC. The May data for housing finance approvals is expected to fall by 5.5% for the month. How these data points evolve over the months ahead will be critical in determining banks demands for new funding.

Josh Stewart

Client Relationship Manager