Let’s start off with a BANG!
The -0.3% growth in the March quarter prompts Josh Frydenberg to announce that “Australia had entered its first recession in 29 years. As the ABS data below shows the March quarter’s negative figure, growth prediction for the June quarter isn’t looking positive.
The national bushfires earlier this year, resulted in a reduction in tourism and travel spending, then came along the coronavirus. Social distancing rules were announced as investments in housing and construction proceeded to drop. Total business investment decreased by 0.4% while capital spending by governments dropped by 0.7%. Moreover, the ABS shows the national household savings rate rose from 3.5% to 5.5%, which makes sense why consumption was at a halt.
So what does this mean for our dollar? It was reaching GFC-value territory, down at $0.55 USD only a couple weeks ago. In the span of ~10 weeks it has jumped 24% in value against the USD, on the rise to $0.69 USD. The 12th consecutive month of a current account surplus is due to recent heightened demand from China for Australian commodities.
“It’s hard to force people to leave their homes and spend money, but it’s very easy to crank up state-owned factories to improve industrial production.” – Westpac Currency Strategist Sean Callow
In combination with the surge in iron ore prices to $US102, this drove up demand for AUD, increasing its value. Our 0.25% interest rate is slightly contributing to the rise of the AUD. The relatively higher rate in comparison to 0.1% in the UK or below zero rates in the EU and Japan, encourages investment into Australia for a higher rate of return.
Australia’s unemployment rate has risen to 5.2% in March and to 6.2% in April. Commonwealth Bank senior economist Belinda Allen, estimates 100,000 people lost their jobs last month, after an even more shocking 594,000 lost their jobs in April. In response, the government has been implementing stimulus packages one after the other, in hopes to boost domestic consumption and keep unemployment rates as low as possible. Adjustments to the current $70 billion JobKeeper wage subsidy will be announced on July 23rd. Specifically focusing on free child care, the scheme will no longer apply to childcare workers from July onwards. Yikes, productivity rates might take a hit there.
How important is a home reno to you? Now, how important is residential construction to the economy? Seeing as investment is worth north of $100 billion and ~5% of annual economic output, we can welcome the $688 million ‘HomeBuilder’ to the stimulus package family! In response to trade employment reduction from April 2020 onwards, the introduction of the package aims to spark a “tradie-led recovery”. While building approvals fell by 1.8%, after a 2.6% drop in March. The stimulus includes; providing one-off cash payments to eligible owner-occupiers from June to December. In addition to the government’s First Home Loan Deposit Scheme, the package hopes to assist ~10,000 individuals enter the ‘first home buyers’ club. This, in turn encourages the boosting of the investment sector within the housing market, initiating some well-needed aggregate demand.
Checking up on the stock market, an overnight plunge in the US market has caused the Australian share market to fall for a second straight session. The ASX 200 falls more than 3% and reaches 5,847 points after losing 1.9%. We saw the decline of more than 3.5% within the banking sector, while the impact of falling oil prices resulted in a heavy decline in energy stocks. Airline companies are quaking as the fear of a second corona-wave sends consumer confidence as low as can be. Government restrictions on travel bans leaves Sydney airport, Qantas, Flight centre etc with falling figures.
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