Key insights from the week that was.
This week’s key data highlighted that the momentum apparent in GDP in Australia in Q4 has been sustained in early 2021, bolstering our prospects for recovery.
In February, the NAB business survey reported business conditions at their strongest level since mid-2018, when the last home-building boom peaked. Confidence also improved in the month, printing at an 11-year high. Importantly, the uptrend in confidence and conditions is broad-based across the nation and by industry; and the conditions detail points to businesses becoming increasingly more disposed to expanding their workforce.
Combined with the global vaccine rollout and the growing expectation of a swift, full recovery, Australia’s domestic strength has left the consumer in a very optimistic mood. The headline measure from our Westpac-MI consumer sentiment survey remaining near its 10-year high in March as each of the core components (the 1 and 5-year economic outlook and family finance expectations) printed above their respective long-run averages. Our gauge of labour market sentiment also showed strength in the month, reporting one of its best readings in nearly a decade.
Unsurprisingly, house price expectations rose again in March to a new 7-year high, with the readings for NSW, QLD and WA particularly upbeat. However, as actual and expected prices jolt higher, perceived affordability is deteriorating, the ‘time to buy a dwelling’ indicator from our survey falling 12% over the four months to March to be below its long-run average. As the recovery matures, it will be critical to assess how actual and perceived affordability constraints affect housing and consumption.
This week also saw the release of our latest Market Outlook and Market Outlook in Conversation podcast. As detailed by Chief Economist Bill Evans in the podcast, the momentum of the early recovery in the second half of 2020 combined with strong support for the consumer in 2021 from elevated savings, an improving labour market and rising wealth have led us to revise up our growth expectations for 2021 from 4.0% to 4.5% with a still-above-trend 3.0% gain to follow in 2022.
While we have also lifted our expectations for term interest rates this month on the back of the global recovery, we remain of the view that the RBA and other key central banks will persist with asset purchases to at least late-2022, and hold their policy rates at the lower-bound for years.
As detailed by RBA Governor Lowe this week, the timing of lift-off for the cash rate will depend critically on “sustainably higher rates of wages growth” which will require “a tight labour market for an extended period”. With the full employment level of the unemployment rate for Australia conceivably “in the 4s”, Westpac’s forecast for a strong recovery through 2021 and 2022 still does not result in the…
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