Wait, what? Australia’s post-pandemic economy is actually going ‘fairly well’
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Last week’s post-pandemic federal budget was eagerly anticipated by markets and households alike.
And the Morrison government didn’t disappoint. It announced some aggressive new tax cuts for consumers and business and committed to more infrastructure spending.
The net result was a forecast FY21 deficit of $213bn — down (slightly) from an expected FY20 surplus of $5bn.
However, monthly consumer confidence data released yesterday suggests all that spending has had the intended effect; Aussie households are starting to feel more optimistic.
Westpac’s confidence gauge ripped higher by 11.9 per cent to a reading of 105 — the highest level since July 2018.
That capped a 32 per cent surge over the past two months, with the largest gains by state registered in NSW, Tasmania and lockdown-hit Victoria.
Consumer sentiment figures are the latest data point lending weight to the fact Australia’s economy is actually performing pretty well.
Housing finance data released last week showed a big lift in loans to first-home buyers, with increased activity underpinned by fiscal support measures and record low interest rates.
CBA economist Nicolas Guesnon also flagged two other tailwinds — increased household savings and the easing of restrictions around state borders.
The flow of good news prompted CBA rates strategists Martin Whetton and Philip Brown to stop and ask:
“What if things are actually going fairly well?”
Such a proposition seemed unlikely even a few months ago, as COVID-19 cases surged in Victoria and the unemployment rate moved towards 10 per cent.
But now, September jobs data (due out today) could add to the flow of good news (although Westpac expects the unemployment rate to rise slightly).
There’s also a speech from RBA governor Philip Lowe called ‘The Recovery from a Very Uneven Recession’, at 9am this morning, which Whetton and Brown said will be worth watching.
The pair noted developments across the Tasman, where stocks have fallen as markets assess whether rising house prices will force the New Zealand central bank to hold off on rate cuts.
“We don’t necessarily think the RBA Governor will be quite that optimistic. But at the same time the case for cautious optimism can’t be ignored,” the pair said.
In fact, they noted that key data points in Australia’s economic recovery have been beating expectations for a while now.
“Eventually the market will notice. Perhaps when Governor Lowe points it out for them,” they said.