February 2020 Insights

It’s February and the summer holidays are over for most Australians, but the bushfires and drought in eastern states are far from over. Our thoughts are with everyone affected.

January was unusually busy on the economic front. The International Monetary Fund downgraded its global growth forecasts to 3.3 per cent this year and 3.4 per cent in 2021, citing downside risks from geopolitical tensions and worsening relations between the US and its trading partners. And while the US Federal Reserve left interest rates unchanged in January, Fed chair Jerome Powell said: “Uncertainties about the outlook remain including those posed by the new coronavirus”.

In Australia, the economic impact of the summer bushfires and ongoing drought is also expected to be significant. All eyes will be on interest rates in February although recent data suggests the Reserve Bank may hold off cutting rates further for the moment. Inflation lifted 0.7 per cent in the December quarter, taking the annual rate from 1.7 per cent to 1.8 per cent. Also, unemployment fell slightly from 5.2 per cent in November to 5.1 per cent in December. Both indicators fall short of the Reserve’s targets, but they are a positive sign.

Australian retail trade also improved in November, with a rise of 0.9 per cent the biggest in two years on the back of strong Black Friday online sales. However, consumer confidence remained weak over Christmas. The Westpac/Melbourne Institute survey of consumer sentiment fell 1.8% in January after a 1.9 per cent fall in December. This, along with the impact of the bushfires and drought, has hit business confidence, with the NAB business confidence index falling to six-year lows in December.