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Given several months have now passed since COVID-19 really took hold in Australia, what impact is it having on the Australian economy?
Australia, like many countries around the world, is experiencing a severe contraction of its economy whilst trying to contain the virus. The outlook continues to remain very uncertain. Let’s have a look at some of the key measures.
It is estimated that around 850,000 Australian’s have lost their jobs so far as a result of COVID-19. Unemployment is expected to increase to 10%, with the real number expected to increase to 13% which includes those not looking for work. This is a huge number, let’s hope it doesn’t stay at these elevated levels for too long, as the longer it does, the more damage it will cause to our economy.
At this stage, household income has not fallen due to government stimulus, however, this figure is expected to fall by around 6% by mid next year. Put simply, lower household income means Australian’s have less disposable income to spend and drive the economy.
GDP measures the performance of an economy based on output. Victoria represents almost a quarter of Australia’s economy and with Victoria currently in a stage 4 lockdown, the impact on the nation’s GDP is undoubtedly going to be felt.
It is expected that Australia’s GDP figure could fall by as much as 4% – 5% for the September 2020 quarter. At this stage it is too early to know the full extent of the damage on the economy, however it is clear it’s quite severe.
Australia’s inflation rate as measured by the Consumer Price Index (CPI) dropped by 1.9% for the three months to 30 June 2020. This takes the annual inflation rate to -0.3%. While lower inflation means lower prices, which would no doubt be welcomed for many Australians, it points to a weaker economy.
The longer deflationary pressure continues in Australia will certainly worry policymakers. Unfortunately, with interest rates at record low levels, there is not much room to cut interest rates further to boost inflation and the economy.
As mentioned above, interest rates remain at a record low of 0.25%. As long as inflation remains low and unemployment high, expect interest rates to remain at record low levels. This is good for those with loans, however, makes it harder to generate a return from your investment, in particular fixed-income investments.
Recent CoreLogic figures reported Australian property prices fell by 2% during the June 2020 quarter. Melbourne and Sydney suffered the biggest falls of 3.5% and 2% respectively.
The share market suffered a huge drop of around 37% in March but since then volatility has declined and the share market has steadily recovered. At present, the share market is down around 15% from its February 2020 high point.
Welfare packages that began in March have supported the economy as intended. The Government recently extended its JobSeeker and JobKeeper programs, albeit at lower levels.
Unfortunately, the above economic news does not paint a great picture of the Australian economy. The recovery is likely to be gradual and heavily dependent on how well we contain the virus.
In these uncertain times, it can be especially difficult to navigate the financial news. If you would like assistance managing your finances in these uncertain times, don’t hesitate to contact us at Hewison Private Wealth.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.