January 2020 Outlook

As 2020 gets under way and holidaymakers return to work, we wish everyone a happy and prosperous New Year. Our thoughts are also with our fellow Australians caught up in the catastrophic bushfires around the country; we wish you all a safe and speedy recovery.

December provided a busy end to an eventful 2019. Federal Treasurer, Josh Frydenberg announced a downgrade to near-term forecasts of economic growth, inflation, wages and business investment in the Mid-Year Economic and Fiscal Outlook (MYEFO). The Government now expects growth to return to the long-term average of around 3 per cent by 2021/22. Despite a small deficit in the year to October, the Budget is still on track to deliver Australia’s first surplus in 12 years this financial year. Lower government spending, higher export income, low Aussie dollar and solid Chinese demand for our iron ore are all supporting the nation’s bottom line.

The Australian dollar finished the year close to where it started against the greenback, at US70c after fluctuating between US67.08c and US72.68c over the year. This is supporting our trade surplus which stood at $4.5 billion in October, slightly down on the previous month.

Business and consumer confidence faltered before Christmas, as tax cuts and rate cuts failed to boost spending. For example, new vehicle sales fell 9.8 per cent in the year to November. The Westpac/Melbourne Institute survey of consumer sentiment fell to 95.5 points in December (below 100 denotes pessimism). While the NAB business confidence index fell from +2 in October to +0.1 in November (long-term average +5.8).

After its December meeting, the Reserve Bank said it would reassess the economic outlook in February 2020 and provide additional stimulus if needed.