No change in interest rates from the Reserve Bank – an expected outcome from the May meeting yesterday but we got more bad news about the damage being done to the economy by the COVID-19 related lockdowns.
Car sales in April plunged by a record amount to a record low (since 1992 at least), more than one million people have lost their jobs in the past five weeks, according to the Australian Bureau of Statistics; mortgage originations has fallen sharply in recent weeks – by more than 15% across NSW and Victoria and construction across the country slumped to record low levels signalling a depression in the sector.
RBA Governor, Philip Lowe said in his post-meeting statement that there had been an improvement in global and Australian financial markets which are now functioning more freely, though not back to pre-lockdown levels.
“This improvement reflects both the decline in infection rates and the substantial measures undertaken by central banks and fiscal authorities. Credit markets have progressively opened to more firms and long-term bond rates remain at historically low levels.”
But so far as the Australian economy it remains a different story:
“The Australian economy is going through a very difficult period and there is considerable uncertainty about the outlook,” Dr. Lowe said in his statement.
“Reflecting this uncertainty, the Board considered a range of scenarios at its meeting. In the baseline scenario, output falls by around 10 percent over the first half of 2020 and by around 6 percent over the year as a whole. This is followed by a bounce-back of 6 percent next year.”
“In the baseline scenario considered by the Board, the unemployment rate peaks at around 10 percent over the coming months and is still above 7 percent at the end of next year.
“A lower unemployment rate than this is possible if the reduction in labour demand is accompanied by a larger reduction in average hours worked, rather than by people losing their jobs,“ Dr. Lowe wrote.
The RBA releases its second the Statement on Monetary Policy, for the year on Friday and the bank says that in various scenarios considered by the bank for the economy.
“… inflation remains below 2 percent over the next few years. In the March quarter just passed, CPI inflation rose to 2.2 percent, but it is expected to turn negative temporarily in the June quarter, due to falls in oil prices, the introduction of free child care and deferrals of various price increases. Further out, in the baseline scenario inflation is 1 to 1½ percent in 2021 and gradually picks up further from there.”
The SMP will contain key forecasts about the state of the economy including GDP, unemployment, inflation, and wage growth. They are expected to show the bank preparing for the worst quarterly performance by the economy on record in the three months to June.
The RBA also extended the range of collateral it will accept for its so-called repurchase, of liquidity operation to corporate securities with an investment-grade rating. This is designed to give the bank more flexibility in its market operations each day.
It will now accept bonds issued by non-authorised deposit-taking institutions, meaning that bonds issued in Australia by a host of household names would be acceptable in these re-purchase deals (which give provide short term cash to the markets).
Treasurer Josh Frydenberg told the National Press Club on Tuesday, said while the government’s programs were supporting the economy, there would be tough periods ahead.
“Notwithstanding Australia’s progress to date on the health front and the unprecedented scale and scope of our economic response, our economic indicators are going to get considerably worse in the period ahead before they get better,” he said.
New car sales in April crashed to the worst April result on record.
Some car websites and media writers were claiming last weekend that car sales had not been as badly hit by the impact of the COVID-19 crisis and lockdowns and evidenced the 17.9% fall in March sales as a justification.
Yesterday that analysis was shown to be as foolish as it sounds with news that new car sales in April plunged a record 48.5%.
A total of 38,926 sales were recorded for the month compared with 75,550 sales in April 2019 (when sales were down).
That means year to date figures for April totalled 272,287 sales, down from 344,088 in 2019, which is is a 20.9% fall, nearly double the 10.9% slide in the first three months of the year.
“Clearly, the COVID-19 pandemic has had a major influence on the April sales result, and reflects a downturn in the broader economy right across the country,” according to Tony Webber, head of the Federated Chamber of Automotive Industries.
And the Australian Industry Group-Housing Industry Association’s construction index, released on Tuesday, showed a fall of 16.3 points in April to a record low of 21.6.
That is a severe contraction – 50 marks the dividing line between constriction (below) and expansion (above).
The Australian Bureau of Statistics said that a special survey had found that the accommodation and food services industry is the most impacted by COVID-19, with a drop of around one in three paid jobs in the industry from mid-March to mid-April.
The ABS said the Weekly Payroll Jobs and Wages in Australia estimates also showed that between March 14 and April 18 (the five weeks after Australia recorded its 100th confirmed COVID-19 case) “total employee jobs decreased by 7.5%, while total wages paid by employers decreased by 8.2%.”
ABS head of Labour Statistics, Bjorn Jarvis, said: “The industries which lost the most jobs continued to be Accommodation and food services (-33.4%) and Arts and recreation services (-27.0%).
“Job losses in Accommodation and food services were greatest in South Australia (-39.7%) and Victoria (-35.6%).
“The new data shows that jobs in Accommodation and food services worked by people aged 20-29 and people over 70 decreased the most (-40.8% and -43.7%).” he added.
