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Economic and Financial Market Update: It Ain't Over

17 July 2020

Summary:

June was an improving month for the domestic economy;
But Victoria going into lockdown means Australian economy has taken two steps forward and one step back;
Consumer and business confidence is likely to remain subdued for some time;
The Melbourne outbreak underlines that the only certainty right now is uncertainty.

After a slow start, China has dealt with the crisis well. The good health outcome has enabled the economy to bounce back with impressive growth in Q2. Weak consumer and business confidence though is a feature of other economies that have dealt with the health aspects of the virus well.

Consumer confidence in Australia is also subdued, falling across all states in July. Despite the economic worries, households are not unduly pessimistic about the housing market (albeit sentiment did decline a little in July). Jobs growth jumped by over 200,000 in June. But an underutilisation rate of 19% shows that the labour market is still not in good nick. Jobs growth should improve further in coming months (although there have been recent signs of slowing). The unemployment rate though is likely to head higher yet.

A key factor determining whether the jobs market improves is whether firms become more confident about the outlook. Business confidence did jump in June as the economy re-opened (a reversal can be expected in July). But while confidence has improved firms reported that conditions in June remained tough.