March 16, 2020

NAB’s World on Two Pages: March 2020

We've significantly lowered our global growth forecasts, and in Australia growth slowed confirming a below-trend pace of growth prior to any virus impact.


We have significantly lowered our global growth forecasts due to the slower than expected recovery in activity in China and the increasing spread of the Coronavirus to other countries and associated containment measures. We now expect global growth to be only 2.4% in 2020 (from 3.0% last month and 3.2% pre-virus). Financial markets have gone into a tailspin with large falls in equities, bond yields and commodity prices. Central banks are easing policy and fiscal measures are being put in place. Growth is only likely to show recovery when panic around the spread of the Coronavirus starts to ease and containment measures (by government or self-imposed by households/businesses) start to recede. We now expect a large fall in China GDP in Q1, recessions in the Euro-zone and Japan and much lower growth elsewhere in H1, with risks skewed to the downside.

Since our forecasts were prepared earlier this week some of these risks have been realised – including new containment measures in the US (e.g. a European travel ban) and all non-essential shops being closed in Italy – so further forecast downgrades are likely. With a pandemic underway governments are prioritising containing the virus over economic activity. The sooner the virus spread is controlled the sooner economic activity can rebound but the risk is that the stress on businesses and markets sets in train a longer downturn.


The national accounts showed growth of 0.5% q/q (2.2% y/y) confirming a below-trend pace of growth prior to any virus impact. The accounts showed a similar pattern of growth to previous quarters, with falling dwelling and business investment detracting from domestic demand, while consumption growth remains soft. Again, the public sector and exports added to growth, but by less than recent quarters. While the release largely confirmed growth remained soft in the back end of 2019, all focus is now on the impact on growth from the spread of the corona virus. We have pencilled in a negative quarter of growth for Q1 – on the back of softer exports (tourism and education) as well as a hit to consumption. For Q2 we believe the Government’s announcement of an $18bn fiscal support package has centred the risks around our expectations of a small rise in GDP. Overall, we see little growth in H1 2020 and year-average growth of 1.2% in 2020. We see an improvement in growth to 2.8% in 2021, however this will not occur fast enough to prevent a deterioration in the unemployment rate – which is expected to reach 5.7% by end-2020. Consequently, we see further easing in monetary policy (including a move to yield curve control) and the potential for more support from fiscal policy in the may budget.

Our podcast series to accompany the NAB Forward View – Australia continued this month, giving you a 10 minute summary of our key forecasts.


Find out more in NAB’s world on two pages March 2020

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