The economic picture in 2020 has been dominated by the international spread of COVID-19. In Australia, the federal government has taken action to mitigate the economic fallout, announcing a suite of measures including: the $130 billion JobKeeper payment; increased access to existing income support payments; a new coronavirus supplement; and early, tax-free access to superannuation for individuals who need it.
The Reserve Bank of Australia (RBA) has also stepped in, cutting rates twice in March. The cash rate is now at an all-time low of 0.25%. The RBA has also announced various other measures to reduce funding costs and allow businesses to obtain credit.
The most recent unemployment figure available at the time of writing was 5.2% in March 2020, but this figure by no means captures the full effect of the pandemic. A survey conducted by the Australian Bureau of Statistics (ABS) indicated that around a third of Australians saw their household finances worsen from mid-March to mid-April. While the Treasury expects the unemployment rate to peak in June at 10%, Goldman Sachs research suggests that the true figure could be almost double that if distorting effects are stripped out (such as the number of JobKeeper recipients and unemployed people who have given up looking in a tough market).
Unsurprisingly, Australian consumer confidence has taken a beating. The Melbourne Institute and Westpac Bank Consumer Sentiment Index recorded its largest-ever monthly fall from 91.9 in March to 75.6 in April—the lowest level since 1991. Retail trade shot up in March by 8.2% (seasonally adjusted), which is the largest monthly increase ever published in the ABS’s Retail Trade publication, but this jump was attributable to food stockpiling and purchases of home office essentials, which are unlikely to continue in future months.
Investors have been taken on a wild ride by the share market this autumn. As the market absorbed the shockwaves of the pandemic in March, the All Ords fell as much as 34% from the start of the year. The index has since recovered somewhat, closing at 5325 on 1 May. While this is up 20% from the year-to-date low, valuations remain significantly down on pre-pandemic levels.
To date, the housing market effects have largely related to stock: listings are down significantly, and were 35% lower at the end of April than a year earlier. Price growth has slowed nationally but has remained positive, with house prices up 0.3% in April. However, the Commonwealth Bank forecasts a 10% fall in prices over the next six months.
The economic outlook for Australia looks challenging for at least the remainder of 2020, with the International Monetary Fund (IMF) forecasting that the GDP will shrink 6.7% by year end. However, the IMF predicts a turnaround in 2021, with our GDP growing 6.1%—a glimmer of light at the end of the pandemic tunnel.
