NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.
Latest restrictions will hit Victoria’s economy hard, but COVID-19 has impacted all states.
State Economic Overview, August 2020
The move in early August to stage 4 restrictions Melbourne, and stage 3 for the rest of the State, and fears of further spread, has led to a significant downgrading of our economic outlook.
Our internal data and the NAB Monthly Business survey suggest that consumption and the broader economy was maintaining its recovery momentum until late July. That said capacity levels were still well down from late last year, forward orders did not really improve in July and confidence retreated significantly – all before the Victorian stage 4 restrictions.
The restrictions in Victoria could well reduce Victorian output by around 15% in Q3. Nationally that would take around 3 per cent off Q3 GDP. Over the course of 2020 we now see output down around 5.7% nationally including a fall of 6.25% in Q2 (-3.8% in year average terms). With the withdrawal of current fiscal stimulus in early 2021 we don’t really see a rebound in growth till mid 2021. As a result we see GDP rising by around 3% through 2021 –but less than 1 per cent in year average terms, with GDP not returning to its end 2019 level until early 2023.
Consequently, unemployment is expected to peak at around 9.6% in early 2021, and to still be around 7.6% by end 2022. One implication of this is wages growth will remain lower for longer, as will inflation. We also expect house prices to fall by around 10-15%; while prices are likely to fall in all states this will be led by Sydney and Melbourne which will be impacted by slowing population growth and increased supply. We also expect to see more substantial falls in commercial property prices –especially in retail & office in Sydney / Melbourne CBDs.
While the focus is currently on Victoria due to introduction of stage 4 restrictions, no state/territory is immune from the fall-out of COVID-19. While high frequency indicators such as NAB’s internal data and google mobility have notably weakened in Victoria, they have softened in the other states as well.
For further details, please see State Overview – August 2020
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