The global economic recovery continues, however growth is uneven across regions and there were signs of a loss of momentum in Europe through the September quarter
The Reserve Bank of Australia kept rates on hold at 0.25% at its September meeting and extended the Term Funding Facility until the end of June 2021
From 28 September, Australia's JobKeeper payments will fall from $1,500 per fortnight to $1,200, and $750 for those working less than 20 hours per week
US President Trump stepped up his trade rhetoric ahead of the presidential election with talk of a 'decoupling' from the Chinese economy amid a widening trade deficit
China is on track to be the first country to exit the pandemic and is the only G20 country with a positive GDP result, recording 3.2% year-on-year for the June quarter
The COVID-19 pandemic continues to spread, with data from the World Health Organisation showing confirmed cases were above 27 million at the end of August and rising. Globally, the economic recovery continues following severe contractions in the first half of 2020, but growth is uneven across countries and regions, with fears of a larger second wave dampening hopes of a sustained rebound.
The Australian economy officially entered a recession for the first time since 1991 as the national accounts showed June quarter GDP fell 7.0%, following a 0.3% fall in the March quarter. The fall was weaker than the expected 6.0% fall, led by a 9.8% reduction in hours worked. Consumer spending, which accounts for 56% of the economy, contracted 12.1% over the quarter, largely as anticipated, while business investment was weaker than expected at -3.5%.
The federal government extended the JobSeeker and JobKeeper programs, but will cut back payments, sparking fears of further economic pain. From 28 September, JobKeeper payments will fall from $1,500 per fortnight to $1,200, and $750 for those working less than 20 hours per week. While the downturn has not been as severe as originally expected, the recovery will likely be uneven across the country and extended lock-down in Victoria will take a major toll on the state's economy. The federal government is becoming critical of Victoria's approach, claiming contact tracing capabilities need to improve.
Unemployment nationally is improving but under-employment remains high, while wage and price pressures remain subdued. According to the Reserve Bank of Australia, inflation is expected to average between 1.0% and 1.5% over the next two years.
In Australian Equities - Australia's S&P/ASX200 index rose 2.8% in August with solid gains from the IT (information technology) and consumer discretionary sectors.
CSL announced in September that it has signed Heads of Agreements with the Australian Government and AstraZeneca to supply two potential COVID-19 vaccines within Australia following successful clinical trials. The agreement is to supply approximately 30 million doses of the Oxford University vaccine candidate AZD1222. The first doses are scheduled for release early 2021, however AstraZeneca has halted the trial to investigate an adverse reaction from a study participant in the UK.
Key indicators point to a strong rebound in economic activity, but the outlook remains uncertain with additional aid packages tied up with Congress, which is impacting on consumer sentiment.
Key economic indicators suggest that Europe's recovery is losing momentum through the September quarter. Fears of resurgent COVID-19 infection rates, most notably in Spain and Italy, is leading to greater caution from consumers, while the spectre of deflation is re-emerging for the first time since the euro crisis.
With only sporadic outbreaks across the country, China is on track to be the first country to emerge from the COVID-19 crisis, and the only G20 country to post a positive GDP result in the June quarter.
Japan's GDP fell 7.9% in the June quarter, slightly less than the -8.1% expected, marking the third consecutive quarter of contraction and the steepest on record following impacts from COVID-19.
This update was written by Lonsec Research Pty Ltd and is current as at 11/09/2020. Information contained on this web page is of a general nature only and your personal financial position, objectives or needs have not been considered. Please ensure you have the necessary financial, tax and legal advice before acting on this information. Do not rely upon it when making financial decisions.