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October 2020 Insights

October 2020

October is here and it’s shaping up to be a busy month. All eyes were on Treasurer Josh Frydenberg’s second budget, delayed by five months due to the economic disruption caused by the COVID-19 pandemic, which was designed to chart a course out of recession and get the economy moving again.

In September it was confirmed that Australia is in recession. The economy contracted 7% in the June quarter following the 0.3% fall in the March quarter, taking the annual decline to 6.3%, the biggest since 1945. The pandemic has also hit the federal budget bottom line, with a budget deficit of $85.3 billion in the 2019/20 financial year. The biggest government stimulus program since WWII took net government debt to $491 billion, or 24.8% of GDP, with more spending on the cards.

Against this backdrop, there is mounting speculation that the Reserve Bank could cut the cash rate as early as next week, from its current record low of 0.25%, to help stimulate the economy. A rise in the Aussie dollar could tip the balance. The dollar ended September around US71.5c, down 2c over the month, after dipping as low as US70c.

On a positive note, the ANZ-Roy Morgan consumer confidence index rose for four weeks straight in September, to a 14-week high of 95 points (although still 19.7 points lower than a year ago). The NAB business confidence index also improved, from -14.2 points to -8.0 points in August. Unemployment is also headed in the right direction, down from a 22-year high of 7.5% to 6.8% in August.

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