Two important economic indicators released this week suggests that the coronavirus recession will not be as deep as feared for Australia and that the Australian property market is defying expectations.
1.Westpace Consumer Confidence Index
Confidence in the Australian housing market has boomed in October with a Westpac consumer survey recording an “extraordinary” surge in increased confidence off the back of the federal budget. The survey, which measures Australian consumer sentiment, saw house prices expectations and the “time to buy a dwelling” index bounce back in the past month, despite the pandemic-induced recession.
It is a stunning recovery from earlier in the year when the Australian property market suffered its biggest monthly fall in confidence in the survey’s 47-year history.
Westpac chief economist Bill Evans described it as an extraordinary result, citing the overall consumer sentiment index which was up 32 per cent in the past two months alone and 10 per cent above the average level in the six months prior to the pandemic.
“Such a development must be attributable to the response to the October federal budget; ongoing success across the nation in containing the COVID-19 outbreak; and the expectation that the Reserve Bank board is likely to further cut interest rates at its next meeting on November 3.”
The survey is the latest in the growing body of evidence that shows the property market has defied expectations during the pandemic, with major banks revising their gloomy forecasts, monthly price falls continuing to ease and steady auction clearance rates due to strong buyer demand.
2. IMF world economic outlook
According to the International Monetary Fund, the coronavirus recession will not be as deep as feared for Australia but it will take years to recover with ongoing high levels of unemployment and government debt.
In its world economic outlook released overnight, the fund said it expects the Australian economy to contract by 4.2 per cent this year before growing by 3 per cent in 2021.
The forecasts are a sharp improvement on what the IMF was expecting in April, during the depths of nation-wide health restrictions, when it believed the economy would shrink by 6.7 per cent before growing by 6.1 per cent. The better growth outlook translates into an improved forecast for the jobs market. Unemployment is tipped to reach 6.9 per cent this year and then increase to 7.7 per cent through 2021. In April, the IMF was forecasting unemployment to reach 8.9 per cent next year.
Globally, the economies of rich nations are expected to contract by 5.8 per cent this year and then grow by 3.9 per cent in 2021. By 2021, growth will be back to 1.7 per cent with Australia tipped to be at 2.5 per cent.
The subdued growth will translate into more debt. Before the coronavirus outbreak, Australia’s general government debt was 46.3 per cent of GDP with 13 nations having lower levels of debt.
By 2025, Australian debt is expected to be at 70.9 per cent of GDP with 18 countries holding a smaller debt load.
IMF economic counsellor Gita Gopinath urged all countries to maintain spending throughout the pandemic, which is only likely to abate once a safe and effective vaccine is available.