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In business, confidence can so often be key to successful outcomes, and that’s particularly true in charting the economy’s recovery path from COVID-19. The Governor of the Reserve Bank, Philip Lowe, recently noted:
“With the national health outcomes better than earlier feared, it is possible that the economic downturn will not be severe as earlier thought. Much depends on how quickly confidence can be restored.”
Economic confidence was clearly falling as COVID-19 worsened, and so many activities were being restricted. In this environment, businesses have become particularly cautious when it comes to any longer term decisions around job hiring and investment, while consumers have been reluctant to spend.
Confidence has taken a huge battering – and case in point, in late March the ANZ-Roy Morgan Consumer Confidence Index fell to its lowest level since the inception of the survey in 1973.
But as the health crisis continues to ease and the economy is re-opening, the mood is clearly starting to shift. Confidence has been rising, most notably in the first two weeks of April after the Federal government announced the JobKeeper program, and that has continued through May and into June as the economy steadily re-opens (while health risks are kept at bay).
Chart: Australian consumer confidence index (weekly)
Source: ANZ-Roy Morgan Australian Consumer Confidence.
Some benefits of the economy re-opening are already being seen. Between April and the end of May, data from the SEEK Employment Snapshot shows new job advertisements posted on SEEK have increased 49%.
Similarly, recent credit card spending data from Commonwealth Bank suggests household spending has recovered somewhat from the low point observed in mid-April, with household goods retailers seeing good gains.
Of concern in moving our economy back to a growth path is that while consumers are re-emerging, private businesses are hesitant to invest in capacity development. The ABS recently released the results of its Survey of New Capital Expenditure for the March quarter, revising estimates of new capital expenditure for the 2020-21 financial year to be 8.8% lower than previously expected. Normally the March quarter sees a significant upward revision in planned capital expenditure.
Other business surveys are also showing caution. The NAB Monthly Business Survey for April shows that business conditions further weakened in Australia, as profitability, employment and trading conditions all worsened. Business confidence did rise during the month, anticipating better conditions ahead, but remains well below the trough of the 1990s recession.
The recent ABS Business Impacts of COVID-19 Survey also shows a tough operating environment. Overall, 72% of all businesses reported decreased revenue as a result of COVID-19, while 24% reported having reduced their total number of employees. Looking forward over the next two months, 64% of businesses expect restrictions on trading to continue to impact their operations.
Restoring confidence in the economy is a key component for Australia’s economic recovery from the pandemic, and this will need to go hand-in-hand with keeping public health risks at bay.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.