Our Economics Research team expects a sharp contraction in the economy in the June quarter, then an improvement, assuming some lockdown restrictions are eased.
- CommBank’s credit and debit card spend data for the week ending 3 April 2020 indicates overall spending was down 15% from a year ago
- We expect the economy to contract by around 7.5% in the June quarter and for the unemployment rate to reach close to 8% at the end of June 2020
- The longer the lockdown is in place, the less likely it is that the economy will recover quickly because this increases the chance that some companies won’t make it through.
There is some better news, the daily number of new COVID-19 cases has fallen to slightly more than 100, down from around 600 new cases daily during the peak period in March 2020.
But COVID-19 is having a profound impact on the economy. Our CBA credit and debit card spend data for the week ended 3 April 2020 indicates that overall spending was 15% lower than the same time last year. Stockpiling of food and alcohol has largely run its course. In the past two weeks, in particular, overall spending has fallen.
Sharp economic contraction and spike in unemployment in the June 2020 quarter
Based on the assumption that the lockdown continues into the June 2020 quarter, we expect the Australian economy to contract by 7.5%. That is a large contraction, the likes of which we haven’t seen in modern times.
With that comes a rise in the unemployment rate to close to 8% by the end of June. That is despite the Federal Government’s $A130 billion JobKeeper program keeping a large number of people in work.
What does the September 2020 quarter look like?
We have pencilled in an improvement in economic activity in the September 2020 quarter based on some of the current lockdown restrictions being lifted. If not, we are looking at another weak quarter.
The longer the restrictions are in place, the less likely it is that the economy will recover quickly. That is because some companies won’t make it through a prolonged shutdown and consumer behaviour could be changed. It would be helpful to hear from the Federal Government about its exit strategy.
When the Reserve Bank of Australia releases its usual statement on 7 April 2020 following its monthly board meeting earlier that day, we will be looking for any insights into its outlook for the next three to six months. Further details could come on 21 April 2020 when it releases the minutes from the 7 April 2020 board meeting.
Taking the pulse of the housing market
The best timely indicator of sentiment around the housing market is auction clearance rates. Clearance rates have fallen below 50% as of the 5th of April, indicating that there has been a material shift in sentiment. How the housing market performs in coming months will be affected by people losing their jobs, as well as restrictions on how auctions can be held.
These are some highlights from CommBank’s 7 April 2020 Economic Update webinar. These twice-weekly webinars aim to keep you informed and help you navigate these turbulent times.
Commonwealth Bank of Australia, Global Economic & Markets Research reports “CBA Economics: Economic Update - Coronavirus Daily Tracker”, published 7 April 2020, author Kristina Clifton, “CBA Card Spend – week ending 3 April 2020”, published 6 April 2020, author Kristina Clifton, and “Issues: GDP to plunge, unemployment to spike and an unprecedented fiscal deterioration”, published 2nd April, author Gareth Aird. Full Global Economic & Markets Research disclaimers can be found at www.commbankresearch.com.au.