Actual Economic performance                   

Past week the ABS has released employment data that continuous edging higher at 7,45% in June compared to 7,08% in May.                            

The most remarkable element in the jobs report was the increase in part time jobs created, against full time that are still losing jobs but at a slower pace.

australia full time and part time employment

Besides high unemployment rates, the Australian actual economic situation is marked by steady increase in inflation and lower GDP Growth.

As seen on the chart below, headline CPI for the first quarter 2020 has reached a level of 2.2% on a year over year basis. That level which was unseen since 2014.

However, inflation is expected to come below that level in the second quarter due to coronavirus and country lockdown effect, low business and consumer sentiment and the sharp decrease in commodity prices earlier in the second quarter.

Likewise, GDP growth is also expected to come weaker on Q2- 2020 due to the same reasons as mentioned before.

Retail sales were highly affected by the lockdown measures, reopening and then a partial re-lockdown. This situation causes much volatility in the data and hardly affects businesses and job keepers.   

Government and Central Bank measures                             

The Australian Government and central bank are keeping close eye on the COVID-19 pandemic development and how it affects economy.

The Reserve Bank of Australia, in its Monetary Policy Decision early this Month, decided to “maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points”,

And showed that “The Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS”,

Notwithstanding the signs of a gradual improvement, the RBA expresses that the nature and speed of the economic recovery remains highly uncertain.                       

Leading Indicators                      

In forecasting future economic performance for the third quarter 2020, leading indicators are sending mixed messages, with consumer sentiment slows down from 93.7 in June to 87.9 in July as a result of the re-lockdown measures in major parts of the country.

The AIG construction and services performance indexes are still in the contraction territory below 50, but contraction at a slower pace.

On the other side, NAB business confidence and manufacturing PMI have both erased earlier slowdown and are back to positive territories near pre pandemic levels.

This contradiction in leading surveys maintains uncertainty among business owners, and may push hard data to stick below average for a much extended period.                   

Growth and Inflation forecast                              

As known among hedge fund managers, professional traders, and through statistical experiment, major leading indicators and surveys are intended to front-run what the real economy will do by about three to six months, and sometimes more.               

In the table below we have taken the average past four months data for each indicator (except for quarterly indicators) before the quarter begins.  

To sum-up what the numbers are telling us, most leading indicators for Australia indicates that the Australian economy still to struggle in the third quarter 2020, and GDP Growth to remain subdued.

On the other hand, inflation is expected to slow down in the second quarter due to low demand and sharp decrease in commodity prices, and to start picking up by third quarter after the recovery seen in commodity prices by mid-May, June, and July.

Major Risk themes to the outlook:

Uncertainty around COVID-19, and looking for ways to reopen the economy and live with the virus may get clearer a bit by August, but the overall situation is expected to remain as explained with subdued growth and slight pickup in inflation in the third quarter 2020.