WEEKLY E-MAIL

23 November 2020

PROMISING SIGNS FOR THE AUSTRALIAN ECONOMY

By Denise Slattery

As the Australian economy emerges from its deepest recession since the 1930s, with around 2.5 million Australians either unemployed or underemployed, wage growth at record lows and the Reserve Bank of Australia having recently cut official interest rates to 0.10%, you may say that there is not a lot to be happy about with regards to the economy.

However in recent weeks, there have been several positive news stories relating to the Australian economy, which would suggest that we are entering a recovery.

Aussie consumers are feeling more cheerful. The November estimate for the Westpac Melbourne Institute Index of Consumer Sentiment, which measures changes in the level of consumer confidence in economic activity, rose by 2.6% in November, rising to a seven year high of 107.7 points as detailed in the chart below. A reading above 100 denotes optimism.

It is important to note that the survey took place before the US election result was clear, as well as news of a COVID-19 vaccine emerged, so arguably confidence levels may have increased further.

Australians appear to be opening up their wallets again, with data from the banks regarding card activity, showing spending lifted strongly in the early part of November. Part of the increase may be linked to Victoria opening up again; however, the other states are also demonstrating increased spending.

There is positivity regarding housing prices, with most cities recording price increases in recent months. Strong growth in housing finance aided by record low-interest rates and an easing of lending rules are supporting this upturn in housing.

Iron ore prices are supporting trade. Whilst commodity prices are unpredictable, the price of iron ore, at around US$122 a tonne, remains nearly more than double the level assumed in the recent federal budget and is providing a huge boost to the international trade surplus and adding substantially to national income.

Finally, share markets are rallying. The ASX 200 has risen over 40% since the March lows, which were driven by the recession and the numerous lockdowns throughout Australia and across the globe. Increasing share prices show that investors are confident in the earnings and the profits of the business sector, which underpins consumer confidence and spending.

Whilst it is still far too early to say that the economy has recovered and that 2021 will be a bumper year of strong growth, it is encouraging to see several key indicators all pointing to an improved economy and that the worst of the recession may be behind us.

Denise Slattery
Senior Para-Planner
Authorised Representative No. 304356

If you have any questions or comments, please email me at denise@gfmwealth.com.au

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