NAB’s World on Two Pages – August 2020

The global economy continues to recover from the impact of COVID-19. However, there is still a long way back with progress. In Australia, we have downgraded our forecasts due to the containment measures in Victoria.

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Global

The global economy continues to recover from the impact of COVID-19 However, there is still a long way back with progress uneven globally. High frequency indicators for the US and India have stalled on the back of a resurgence of the virus, although in this regard the worst may be over for the US. Incoming Q2 GDP data confirm a massive hit to advanced economies (AEs) from the response to COVID-19. The trough in activity across the AEs was centred on April and the subsequent recovery sets the stage for strong growth in Q3, although some countries have imposed some regional restrictions which will slow the recovery. China’s economy, the first to be impacted by COVID-19, recovered more strongly than expected in Q2 and GDP is now above its Q4 2019 level. Our global forecast is marginally weaker at -3.8% for 2020 and +5.9% for 2021. How the virus spreads, and how countries respond (including maintaining appropriate fiscal support), is likely to remain a key driver of economies.

This month we recorded a podcast to accompany the Forward View – Global, giving you a 10 minute summary of our key forecasts.

Listen to the full podcast now. If listening on a mobile device, click listen in browser. Alternatively, read NAB’s World on Two Pages August 2020 report 

Australia

We have downgraded our forecasts on the back of the tightening in virus containment measures in Victoria. Rough estimates suggest the developments in Victoria could subtract around 3% from GDP in Q3, with activity expected to decline by around 15% in the state. In aggregate this sees our forecast decline in GDP reach 3.8% in 2020 (was -1.8%) and for unemployment to rise to around 9.2% by the end of the year. For 2021 we now see growth of 0.8% (was 1.8%) and around trend growth in 2022. Unemployment is expected to peak at over 9.6% and expected to only recovery gradually – staying above 6.5% by end-2022. The RBA’s set of staff forecasts see a faster rebound in 2021 than us, but see unemployment peaking at a higher rate. The updated forecasts also saw small downgrades to the wage growth and inflation outlook as a result. Both our and the RBA’s forecast imply an extended period of rates at their present level, and in our opinion point to the need for ongoing fiscal support. This will remain key to ensuring that secondary fallout of the economic impact of containment measures is minimised, allowing the economy to recover as quickly as possible. Key risks in addition to the future spread of the virus, will continue to be the degree of scarring in the labour market, the fragility of consumer and business confidence as well as a potential range of structural impacts including the impact on commercial property.

This month we recorded a podcast to accompany the Forward View – Australia, giving you a 10 minute summary of our key forecasts.

Listen to the full podcast now. If listening on a mobile device, click listen in browser. Alternatively, read NAB’s World on Two Pages August 2020 report