NAB’s World on Two Pages – September 2020

Globally, after massive falls in GDP in Q2 across the advanced economies, the latest indicators are pointing to a substantial, but incomplete, Q3 rebound. In Australia, GDP fell by 7% in Q2 – the largest fall in the history of the quarterly national accounts.

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Global

After massive falls in GDP in Q2 across the advanced economies (AEs), the latest indicators are pointing to a substantial, but incomplete, Q3 rebound. However, momentum appears to have eased through Q3. Similarly, surveys point to a strong rebound in EMs in Q3, but mobility data suggests there is still some way to go, with the ongoing spread of COVID-19 presenting a risk. Due to the large falls in activity in the first half of the year the global economy is projected to contract by 4.0% in 2020 (previously 3.8%) and then to grow by 6.3% (previously 5.9%) in 2021. For many countries the recovery is expected to be protracted. The spread of the virus remains a key risk, with some countries struggling to get it under control and others having experienced a resurgence. Another risk is around how authorities manage the unwinding of the large policy supports that were put in place, with uncertainty around US fiscal policy the most immediate concern.

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 September 2020 report

Australia

GDP fell by 7% in Q2 – the largest fall in the history of the quarterly national accounts. The fall was driven by a 12% decline in consumption, with spending on household services declining by a massive 18%. Dwelling investment saw a sharp decline, while business investment also fell. By industry, hospitality and recreational services saw the largest falls in activity – though most industries were heavily impacted. Our updated set of forecasts see GDP decline by around 4.7% in 2020, before rising by 1.3% in 2021. We see growth returning to around trend by 2022, but for the level of GDP to only be fully recovered by mid-2023. Unemployment is expected to peak at around 10% in early 2021 – and recover slowly, likely lagging the recovery in activity. Therefore, we see unemployment at around 8.0% by end 2021 and 6.8% by end 2022. Wage growth and inflation are expected to see very soft outcomes and therefore there will be little constraint on easy monetary policy – where we expect rates to stay low for an extended period. Overall, while the economy will begin to recover through 2021, we think that policy makers will need to do more to support the recovery. This will likely come in the form of ongoing support on the fiscal side, with continuation of wage subsidies, higher unemployment benefits as well as the bring-forward of tax cuts. The government is also likely to do what it can to accelerate infrastructure spending and increase investment allowances.

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 September 2020 report