Global

The recovery in the global economy that started in May continued through June. We expect that the trough in global economic activity will be in Q2, with a substantial rebound likely in Q3 barring a significant re-introduction of COVID-19 countermeasures. Nevertheless, we still expect to see the biggest contraction in annual growth since at least the early 1950s and most likely since the Great Depression. The global economy is forecast to contract by 3.5% in 2020 (previously -3.7%), before increasing by 6.0% (was 6.2%) in 2021, and 3.9% in 2022 A key risk to this outlook is renewed outbreaks of COVID-19 (as is occurring in the US) or uncontained outbreaks (e.g. Latin America, India) and re-imposition of restrictions or delays in their removal. A reimposition of at least some restrictions has already occurred in some countries, such as in parts of the US, India and China although there has not yet been a repeat of the (essentially) nationwide shutdowns seen earlier. The uncertainty over the outlook will weigh on business and consumer confidence, and is one reason we expect that a full recovery from the global recession will take time for many countries.

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

Australia

We have revised up our forecasts for activity – now expecting a decline of around 4% in GDP for Q2 (from -8.5%). Our internal transactions data suggest that while there was a deep dip in activity in early April, there has been a rapid rebound in activity. Overall our forecasts in annual terms are now for a decline of 1.8% in 2020, followed by growth of 1.6% and 2.8% in 2021 and 2022 respectively. We still expect the unemployment rate to peak at over 8% in the near term and for only a gradual recovery over the next two years – with unemployment around 6% at end-2022. Like our internal data, the NAB Monthly Business Survey for June showed a continued rebound in conditions and confidence (which turned positive in the month) but it is important to remember that despite the much faster than expected turnaround in survey measures, all measures bar confidence remain historically low. In particular, capacity utilisation remains below average across all industries except for retail. Overall, while we have revised up our forecasts, it is important to remember that the economy has undergone a very large shock and, while there are some encouraging signs of a recovery, that significant risks remain. Some industries will face longer term fallout, while confidence may remain fragile as both global and domestic uncertainty remains elevated.

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

Find out more in NAB’s World on Two Pages July 2020