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2020 has been the year of struggle for Australian economy with rising unemployment numbers, disappointing PMI data, sluggish wage growth, amidst severe drought, raging bushfires and threat of global pandemic coronavirus. Australia is facing one of the biggest economic perils in a generation.
Rising threats of global pandemic has resulted in a record high sell-off in share markets.
Long term bond yields have been at record lows.
Coronavirus has shaken the economic environment of almost every country and a slew of events are being taken to improve the growth momentum.
Central banks have been dovish around the world on coronavirus outbreak, triggering 25 bps rate cut by RBA on March 3. Even US Fed stepped in by providing emergency rate cut by half a percentage point, owing to risks on the economic environment due to coronavirus.
ALSO READ: US 10-year Treasury yields at an all-time low amidst coronavirus fears
Prime Minister Scott Morrison has disclosed Treasury has been preparing a stimulus plan to be announced in May budget. This is due to the troubling phase the domestic economy is going through due to coronavirus outbreak that has shaken global financial markets and pushed the Chinese economy in a lockdown.
The Treasury will target the sectors that have been worst-hit by coronavirus like tourism, education, building and sea-food exporters.
Retail Turnover Dips 0.3% In January
As per the data released by ABS on March 6, the retail turnover fell 0.3% in January 2020 in seasonally adjusted terms, following a fall of 0.7% in December 2019.
Bushfires have adversely impacted retail business across a variety of industries which reduced customer base couples with hindrances in trading hours and tourism.
There was a fall in household goods retailing (1.1%), departmental stores (2.2%), clothing, footwear and personal accessory retailing (1.1%), while food retailing rose 0.4%.
Western Australia, Victoria, Australian capital territory, Tasmania, New South Wales, Queensland and Northern Territory showed a fall in retail turnover, while South Australia rose in seasonally adjusted terms in January 2020.
0.5% Q4 GDP Growth Better than Expectations
The Australian economy grew at 0.5% in final three months of 2019 in seasonally adjusted terms, as per ABS data released on March 4, outstripping the expectations of economists who predicted quarterly GDP growth of 0.3-0.4%.
The domestic demand softened at 0.1% in the December quarter compared to 0.4% in the previous quarter.
Digging Deeper Into GDP Numbers
The total final consumption expenditure (FCE) increased by 0.5% in December quarter over September quarter 2019 due to rise in following factors:
- Household expenditure (+0.4%) driven by an increase in sales of clothing and footwear, furnishings and household equipment and recreation and culture activities
- Government FCE (+0.7%) due to an increase in national non-defence expenditure
- National defence government FCE fell to 2%, partly offsetting the rise in household and government FCE
Gross fixed capital formation (GFCF) fell by 1% in December quarter over the September quarter due to fall in following factors:
- Private investment (-1.1%) on account of the decrease in dwelling and non-dwelling construction
- Public investment (-0.4%) due to a decrease in public corporations
- General Government GFCF rose by 2.2%, partly offset the fall in public and private investments.
Inventories rose A$118 million in December quarter in seasonally adjusted terms following a decrease of A$743 million in the last quarter. The increase in inventories was due to a rise in mining inventories. Nonetheless, the rise was offset by a fall in farm and retail trade inventories.
Exports remained flat and imports fell partly offset by an increase in the imports of intermediate and capital goods.
Prices of key export commodities like coal, iron ore and gas fell reflecting deteriorating terms of trade in December quarter. The current account surplus fell by 85% (seasonally adjusted) in December quarter 2019 as per the data released by ABS on March 3.
Growth In Manufacturing And Mining But Construction Sector Disappoints
Manufacturing grew by 2.3% over the September quarter driven by the rise in food, beverage and tobacco product manufacturing due to increase in international demand for these products accompanied by a rise in machinery and equipment manufacturing.
Mining grew by 1.6% driven by a rise in coal mining and increase in other mining with copper and gold levels returning to normal after maintenance.
Agriculture, forestry and fishing, transport, information media, healthcare and other services grew at a favourable rate during the December quarter.
However, construction fell by 2.3% propelled by a fall in building construction, heavy and civil engineering construction and construction services due to slowdown in residential, non-residential and non-dwelling construction.
With the latest slashing of global growth projections, AU economy is also expected to slow down in the near-term. As per OECD Interim Economic Assessment report released on March 2, global growth might drop to 2.4% in 2020 with the growth even being negative in the first quarter of 2020.
Growth Expected To Stall For The March Quarter
As per BIS Economist, “Falling service exports and emerging supply chain disruptions combined with the drag of bushfires are likely to result in a contraction in first-quarter GDP growth added by the risk of recession”.
RBA has also pointed out that GDP growth is likely to be weak in the March quarter on account of significant domestic effects of coronavirus. With a spike in cases in South Korea, Japan, Italy and now India, coronavirus remains uncontained.
The negative outlook on the growth of the domestic economy led to an interest rate cut to 0.5% on March 2.
Hence, the scenario in future months for Australia is not looking positive. Business confidence may be impacted due to prevailing global uncertainty weighing on corporate investment and spending decisions.
Tourism, education and retail sectors are the top channels through which Australian growth will be affected.
The prospects remain bleak for the GDP growth in the March quarter for the Australian economy despite better than anticipated growth figures in December quarter. However, if the virus outbreak is contained, growth is expected to rebound in the second quarter of 2020.
