NAB’s World on Two Pages: May 2020

We have revised down our forecasts for global GDP and now expect -3.8% in 2020, while we expect Australian GDP to fall by 8.5%.

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Global

We have revised down our forecasts for global GDP and now expect -3.8% in 2020 (was -2.8%) and +6.5% in 2021 (was 6.6%), reflecting some further escalation of containment measures and only a gradual easing of restrictions in other economies, coupled with ongoing household and business caution. The forecast changes don’t alter the overall picture – there has been a huge fall in activity across most of the world; in China it was centred in February but in many other economies it occurred over March/April. The unemployment rate in the US has gone from a 50 year low in February to the highest on record two months later (data began 1948). With high frequency indicators now starting to show some improvement, global activity likely bottomed in April although a full recovery is likely to be drawn out many countries. In addition, there are a range of risks that may slow or reverse any recovery, including the potential for further major outbreaks of COVID-19, financial market stress, or a flare-up in geo-political tensions.

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

Overall our forecasts are mostly unchanged from last month – but we have tweaked them slightly based on the release of Q1 retail volumes and the CPI. We expect a small fall in Q1, a large fall in Q2 and a small rebound in Q3 for GDP. Overall, we expect GDP to fall by 8.5% in H1 2020. This would be a downturn in activity of unprecedented speed and magnitude, and consequently sees a rapid rise in unemployment to near double digit levels by year end. While we see a rebound in growth next year, the level of activity will not be fully recovered until early – mid 2022. This results in a partial but not complete recovery in unemployment to around 7% by end-2021 – a still high level by recent standards. By component, we expect large falls in consumption, business investment and dwelling investment this year. Our forecasts are predicated on ongoing containment of the COVID-19 in Australia but a slower recovery in the global economy. Should there be a secondary spread of the virus and containment measures reinstated this pattern will see a necessary revision. A significant risk going forward is the ongoing fallout from damaged consumer and business confidence. Consequently, we see ongoing support from policy makers with interest rates remaining low for an extended period and likely further fiscal policy action as existing measures are wound back or expire.

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 May 2020