Domestic Economic Conditions - Reserve Bank of Australia
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3. Domestic Economic Conditions A recovery in economic activity is underway and have also increased the financial buffers of across the country, but is proceeding at an many households and businesses; an increase in uneven pace. Some industries remain financial buffers is an unusual outcome during constrained by mandated and voluntary social an economic downturn. Measures introduced distancing, particularly in hospitality and by the Bank have supported financial market tourism, while some other industries are feeling functioning and the flow of credit, and reduced the effects of the broader economic downturn. interest rates for borrowers. All these measures The recovery has also varied across the country. will encourage a swifter recovery. While earlier The recent outbreak in Victoria and the fiscal measures were centred on supporting associated strict lockdown measures induced a incomes and retaining jobs, recent temporary setback there, but the economic announcements have been more targeted recovery has continued elsewhere. Nationally, towards stimulating private demand, which had more than half of the employment lost in the taken a significant hit because of the pandemic. initial downturn has been regained, but It is also likely that the disruption to how significant spare capacity remains in the labour businesses and households operate, work and market. consume will lead to some structural change in This recovery follows the biggest peacetime the economy and entail a period of adjustment. contraction in the Australian economy since the More generally, and as set out in the ‘Economic early 1930s. The national accounts confirmed Outlook’ chapter, a high degree of uncertainty that the Australian economy contracted by will be a feature of the outlook for some time. 7 per cent in the June quarter, the largest decline since the quarterly accounts began in Domestic COVID-19 cases have fallen 1959. The decline in GDP was immense, but less significantly severe than in many other advanced economies Most states have recorded a small number of because health outcomes here were less severe new daily COVID-19 cases over recent months, and policy support was substantial. but many of these have been returned travellers The near-term economic outlook will depend in hotel quarantine and there have been few significantly on health outcomes, the prevention instances of local transmission that are not of the spread of the virus, and advances in linked to known contacts. The number of daily medical treatment. The substantial policy domestic COVID-19 cases over recent months stimulus implemented by the Australian and has largely reflected case numbers in Victoria; state governments and the Bank has played an these have declined significantly, from an important role in supporting the economy and average of around 270 in July to below 5 in late will continue to do so. Policy measures October, and local transmission has fallen to a introduced since the start of the pandemic have few cases per fortnight (Graph 3.1). helped to keep employment relationships intact S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 37
Since August, state governments outside of was a shallower but still noticeable dip in Victoria have generally made targeted Sydney, while the other capital cities appeared adjustments to social distancing restrictions in to have been less affected. Indicators of mobility, response to local outbreaks, and have also outside of Melbourne, have been relatively announced plans to ease restrictions further if steady or declined a little over the past month or health outcomes allow it. Even so, some so and remain below their level at the start of restrictions are likely to remain in place for some the year in all states. Survey measures of time, possibly until a vaccine becomes widely business sentiment have continued to pick up distributed. over recent months, while measures of Restrictions in Melbourne have begun to be consumer sentiment increased sharply following lifted under the Victorian Government’s the release of the Australian Government ‘roadmap’ for reopening the economy in steps, Budget (Graph 3.3). which seeks to balance reopening the economy and containing the virus. The first target was met in late September, a touch ahead of schedule, and restrictions were relaxed slightly. The next, Graph 3.2 more substantive, step of reopening started in Mobility Indicators late October. The last step of the plan, which By mode of transport or location, 1 March 2020 = 100 index Driving Transit stations index would bring restrictions on activity in the state 100 100 Adelaide, Brisbane broadly in line with other parts of the country, is Sydney and Perth conditional on reaching a target of no new 50 50 Melbourne locally acquired cases in a 14-day period. index Walking Retail* index Over recent months, individuals have also 100 100 voluntarily adjusted their behaviour in response 50 50 to concerns about the spread of the virus. Reflecting a combination of mandated and 0 M A M J J A S O N M A M J J A S O N 0 voluntary responses, indicators of mobility * Retail data are state based Sources: Apple; Google LLC (2020), ‘Google COVID-19 Community dipped around July and August (Graph 3.2). Mobility Reports’, available at https://www.google.com/covid19/mobility/ viewed on 4 November 2020; RBA Given the lockdown measures in Victoria, there was a marked fall in mobility in Melbourne; there Graph 3.3 Graph 3.1 Business and Consumer Sentiment* Net balance, deviation from long-run average ppt ppt Confirmed COVID-19 Cases in Australia Business Three-day moving average, by state 0 0 no no Conditions -30 -30 Victoria Confidence 450 450 -60 -60 ppt Consumer** ppt 10 10 300 300 0 0 New South Wales -10 -10 150 150 -20 -20 Other states and territories -30 -30 2008 2012 2016 2020 * Latest observations are September 2020 for business confidence and 0 0 conditions and October 2020 for consumer confidence M A M J J A S O N ** Average of Westpac–Melbourne Institute and ANZ–Roy Morgan 2020 surveys Sources: covidlive.com.au; government health departments; RBA Sources: ANZ–Roy Morgan; NAB; RBA; Westpac–Melbourne Institute 38 R E S E R V E B A N K O F AU S T R A L I A
Employment was quick to rebound worked remain well below their previous level initially, but the improvement has (Graph 3.4). Average hours worked have almost slowed more recently fully recovered for part-time workers, as activity Employment and hours worked remain well has picked up in industries that employ a below their pre-pandemic levels, as does relatively large share of part-time workers, such activity. The initial recovery in employment was as hospitality. However, average full-time hours faster than had been earlier expected, but the have recovered only about half of their initial fall pace of improvement has slowed since August. (Graph 3.6). In September, around This slowing at the national level has been partly 900,000 employees were working reduced hours driven by developments in Victoria; between for economic reasons, over half of whom were July and September employment there full-time workers. The number of people decreased by 2.2 per cent while increasing by working reduced hours has steadily fallen in 1.9 per cent in the rest of Australia (Graph 3.4). recent months in most states and is around half Timelier payroll data indicate that the number of the number in April, but has remained elevated payroll jobs nationally are a bit lower than they in Victoria. were in August. Labour market conditions initially improved quickly once health-related restrictions started to be eased from May. Of the 870,000 employ- Graph 3.5 ment losses between March and May, about half Change in Payroll Jobs by Industry Since week ending 14 March have since been recovered, but employment in Public admin Financial September was still 3.3 per cent lower than in Utilities Healthcare Mining March. Increases in employment have been Retail Education broad based across industries, although the Manufacturing 18 Apr* All industries number of payroll jobs remains below pre- Wholesale Professional pandemic levels in most cases (Graph 3.5). Admin Transport 17 Oct Rental (latest) Consistent with the increase in employment, Construction Other services Agriculture total hours worked nationally have recovered Info media Arts about half of their initial fall; the recovery has Accom & food -40 -30 -20 -10 0 % been stronger outside of Victoria but hours * The lowest weekly value of the aggregate payroll jobs index Sources: ABS; RBA Graph 3.4 Employment and Hours Worked Graph 3.6 February 2020 = 100 index Employment Hours worked index Average Hours Worked hours hours Part time (RHS) 100 100 41 17 Rest of Australia 40 16 95 95 39 15 Victoria Full time (LHS) 90 90 38 14 37 13 85 85 F M A M J J A S F M A M J J A S 36 12 2020 2020 2004 2008 2012 2016 2020 Sources: ABS; RBA Sources: ABS; RBA S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 39
Unemployment and other measures of since the pandemic began has been a sharp underutilisation remain high decline in labour market participation. In The unemployment rate increased from particular, of those people who lost employ- 5.2 per cent in March to 6.9 per cent in ment, a large share exited the labour force (at September (Graph 3.7). The rise in unemploy- least temporarily); in many cases these people ment has been smaller than initially expected, in were able to access government income part because much of the labour market support programs (such as JobSeeker) that were adjustment to the downturn was through expanded in response to the pandemic. employees working fewer hours while retaining Although the number of people outside the their jobs, rather than becoming unemployed. labour market has been steadily declining over The retention of employees during this period recent months, there are still more than has been strongly underpinned by the 200,000 people who left the labour force early in JobKeeper program. Consistent with many the pandemic and are yet to return, most of employees working fewer hours, broader whom are in Victoria. As restrictions continue to indicators of spare capacity in the labour market ease, it is likely that more people will look to re- remain high. The heads-based enter the labour force, encouraged by increasing underemployment rate was around employment opportunities and tighter 11½ per cent in September, having declined a JobSeeker eligibility criteria (JobSeeker mutual little from its highest ever rate in April. Hours- obligation requirements for recipients outside of based measures of underutilisation – which Victoria were reinstated in August). To help reflect the additional hours that unemployed gauge the effect of these various factors, the and underemployed people would like to work ABS provides some alternative measures of – have also declined from their recent peaks, but unemployment that include employees working remain elevated. The number of people working zero hours and those employees who moved zero hours for economic reasons in September out of the labour force in March and are yet to 2020 was still around four times as high as in return; these measures have declined in recent September 2019. months but remain elevated (Graph 3.8). Another key driver of the smaller-than-expected increase in the measured unemployment rate Graph 3.7 Graph 3.8 Labour Underutilisation Rates Heads-based Unemployment Rate % % Comparison of measures % % 14 14 18 18 Plus net flows out of labour force Underutilisation rate* since March* 12 12 12 12 10 10 Plus employees with zero hours for economic reasons 8 8 6 6 Unemployment rate 6 6 Underemployment rate** 0 0 Unemployment rate 1980 1988 1996 2004 2012 2020 4 4 M J S D M J S D M J S * Sum of the unemployment and underemployment rates 2018 2019 2020 ** Full-time workers on reduced hours for economic reasons and part-time workers who would like, and are available, to work more hours * ‘Effective unemployment rate’ used by government Sources: ABS; RBA Sources: ABS; RBA 40 R E S E R V E B A N K O F AU S T R A L I A
The jobs outlook remains subdued, but support for businesses and increased social is improving assistance payments. State and territory govern- Forward-looking indicators of employment such ments also provided support to households and as job advertisements and vacancies have businesses, mainly in the form of relief from picked up since May, but remain lower than taxes and fees and increased funding of public their pre-pandemic levels (Graph 3.9). Surveys services. and information from business liaison indicate More recent policies announced in the 2020/21 that employment intentions have improved but Australian Government Budget, released in early remain subdued, and are mixed across October, were targeted at supporting the industries. An elevated share of firms still expect recovery. The measures included bringing to reduce headcount over the year ahead, but forward tax cuts to households and expanding an increasing number of firms report that they and extending depreciation allowances to expect to lift headcount or reinstate regular encourage business investment (Graph 3.10). hours, contingent on continued improvement in Additional expenditure on infrastructure was business conditions. Contacts expecting to also announced. remain eligible for the JobKeeper extension tend The net fiscal impact of the Australian Govern- to be exposed to travel or tourism, or have ment Budget on the economy is equivalent to experienced significant revenue loss because of around 7 per cent of GDP in 2020/21. This is the restrictions in Melbourne. mostly reversed over subsequent years. The fiscal deficit of the Australian Government is The Australian Government Budget expected to increase to 11 per cent of GDP in contained further substantial fiscal 2020/21, as a result of the significant fiscal support for the economy … support provided by COVID-19 stimulus policies Following the outbreak of the pandemic, the and the decline in revenue alongside the Australian and state governments announced decline in activity. This represents the largest fiscal policy measures aimed at limiting the contraction in activity and large-scale losses of employment. The initial packages of fiscal Graph 3.10 support from the Australian Government were Australian Government Budget Measures centred on the JobKeeper program, cash flow 2020/21 Budget, select measures $b $b Graph 3.9 20 20 Labour Market Indicators % Employment intentions* ppt Per cent of labour force NAB survey Near-term* 2.5 30 Advertisements (NSC) 10 10 2.0 15 Over forward estimates Vacancies** (ABS) 1.5 0 0 0 3-months-ahead ts k e es it ts ps 1.0 -15 ac ed ur cu en rit ent ur hi Advertisements ct f -b r of es ym s C x u t w tm rry ea ta e- (ANZ) r tic ng st pa se es m ca e fra en iri m as Inv ld lth H ss 0.5 -30 pr In co ho ea er ap Lo In 12-months-ahead se ak H g ou bM in is H Jo id 0.0 -45 bs 2010 2015 2020 2010 2015 2020 Su * Net balance for the following period; deviation from average; * Cost over the next two financial years, except for the investment asset 12-months-ahead measure seasonally adjusted by the RBA write-off and loss carry-back, which shows the cost over 2021/22 and ** Survey was suspended between May 2008 and November 2009 2022/23 Sources: ABS; ANZ; NAB; National Skills Commission (NSC); RBA Source: Australian Treasury S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 41
peacetime Australian Government fiscal deficit … and policy measures have continued observed in Australia. By 2023/24, the deficit is to support household cash flow expected to have declined to 3 per cent of GDP; Policy measures have provided significant at that time, new policy measures would no support to household cash flow. As a result, longer be contributing to the deficit, which household disposable income increased in the would be driven instead by general government June quarter, despite the large contraction in spending and automatic stabilisers such as economic activity, and is expected to have ongoing elevated unemployment benefit increased further in the September quarter payments and reduced taxation revenues. While (Graph 3.12). Income support has mostly come Australian Government debt has increased due from the JobKeeper program, which increased to spending measures and lower revenue, unincorporated business income and supported interest payments are still expected to decline as labour income, and from the temporary increase a share of GDP over the forecast period, in social assistance payments. Eligibility for reflecting the decline in interest rates to JobKeeper was tightened in late September and historically low levels (Graph 3.11). payments were reduced, in particular for part- As well as supporting households and time workers. (For a discussion of income businesses by adjusting taxes and transfers, the support policies in other economies, see ‘Box A: Australian and state governments have added to Income Support Policies for Advanced demand directly by the provision of public Economies during the COVID-19 Pandemic’.) goods and services. Public consumption Household cash flow has been further boosted increased by 3 per cent in the June quarter, and for those households who made early was the main source of expenditure growth in withdrawals from superannuation since April; the economy, led by state and local government these withdrawals have totalled $35 billion, spending. Public investment is likely to increase equivalent to around 10 per cent of quarterly over coming quarters as ‘shovel ready’ projects household disposable income. In aggregate, the get underway. increase in cash flow from these sources has been partly offset by a decline in other income, partly driven by a fall in financial income alongside steep declines in equity prices earlier in the year. Graph 3.12 Graph 3.11 Household Disposable Income Australian Government Interest Payments Nominal year-ended growth 2020/21 Budget, per cent of GDP % % % Treasury % forecasts 1.5 1.5 5 5 Gross 1.0 1.0 Net 0.5 0.5 0 0 0.0 0.0 Total Unincorporated businesses Tax payable Labour Social assistance Other* -5 -5 -0.5 -0.5 2010 2012 2014 2016 2018 2020 93 / 94 99 / 00 05 / 06 11 / 12 17 / 18 23 / 24 * Includes financial income, interest payable and other Source: Australian Treasury Sources: ABS; RBA 42 R E S E R V E B A N K O F AU S T R A L I A
The Australian Government Budget included travel, as spending by Australians travelling policies that will provide additional support to overseas typically accounts for around 5 per cent many households in 2020/21. In addition to of consumption. bringing forward tax cuts, the low and middle The prevalence of the virus and the income tax offset will continue to be available accompanying activity restrictions weighed for this financial year. These measures are heavily on household spending in Victoria in the expected to reduce household income tax by September quarter. Retail sales fell sharply in around $24 billion over the next two years, August, and information from the Bank’s liaison mostly concentrated in 2021/22. Pensioners and program indicates that store closures severely some other households will also receive two impacted sales growth in Melbourne. Retailers $250 payments, to be paid from November anticipate that conditions will improve 2020 and early 2021, in addition to the two substantially alongside health outcomes and as payments of $750 received earlier this year. trading restrictions are eased over coming months. Income support has enabled a swift The increase in household income and rebound in spending since restrictions contraction in consumption in the June quarter were lifted meant the household saving rate increased A range of partial indicators suggest household sharply to 20 per cent, the highest it has been spending has partly recovered over the past six since 1974 (Graph 3.14). Much of the increase in months, supported by the easing in restrictions the saving rate was due to restrictions on on activity and policies to support household household activity and reduced opportunity to cash flow. After declining by 13 per cent over consume in the quarter, but precautionary the first half of the year, household consumption savings by some households concerned about is forecast to increase by close to 10 per cent future income would also have contributed. over the second half. Some survey indicators suggest that households Consumption patterns have shifted considerably in most income brackets had a higher rate of as households and retailers have adjusted to saving over recent quarters; but that is likely to restrictions. Sales of household goods and food obscure some significant variation within each remained elevated in September. Spending at group. Households are expected to consume a cafes & restaurants improved but remained below its pre-COVID level (Graph 3.13). Online retail sales continued to grow strongly in recent Graph 3.13 months, to account for more than 10 per cent of Retail Sales Values December 2019 = 100 total retail sales. Sales of motor vehicles also index index Household goods Rest of increased strongly in many states. 120 Australia 120 Food Spending on discretionary services has 100 100 remained weak compared with other types of Other* Total Victoria 80 80 consumption, although there are signs of improvement in some areas as restrictions ease. 60 Cafes & 60 Clothing & For example, payments data and information footwear restaurants 40 40 from the Bank’s liaison program point to an 20 20 increase in domestic travel spending from its N D J F M A M J J A S N D J F M A M J J A S 2019 2020 2019 2020 trough in the June quarter. Some of this * Includes department stores and other retailing expenditure is likely to be instead of overseas Sources: ABS; RBA S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 43
larger share of their income as opportunities to where lower dwelling investment in previous spend increase and household income declines years has limited the supply of new rental stock. alongside the tapering in fiscal policy support. More generally, lower rental income could present cash flow challenges for some property Housing market conditions across the investors if weak rental market conditions country are uneven continue, and may also weigh on investor Housing prices in Melbourne and Sydney have demand for new properties. declined since the August Statement, while prices have increased in the other capital cities Policy is supporting detached housing and regional Australia (Graph 3.15). New listings construction have increased in most cities since August, but Fiscal and monetary policy measures are remain a little below average for this time of year supporting conditions for detached residential (Graph 3.16). The exception was Melbourne, construction in the near term. Building where new residential property listings fell approvals for detached dwellings rose strongly sharply because of the restrictions that were in over the September quarter (Graph 3.18). Survey place, but rebounded strongly in October as measures of new orders for detached homes restrictions on in-person auctions and inspections were lifted. Auction clearance rates declined in September to below 40 per cent in Graph 3.15 Housing Prices Melbourne, and many scheduled auctions were January 2000 = 100, seasonally adjusted index index withdrawn, but recovered to around 60 per cent 350 350 in October. Auction clearance rates in Sydney Melbourne Hobart have increased to around 70 per cent over the 300 Canberra 300 Brisbane same period, and auction volumes have been 250 250 Adelaide Perth around average. 200 200 Sydney Darwin Rental vacancy rates remain elevated in Sydney, 150 150 and have increased further in Melbourne 100 100 (Graph 3.17). Advertised rents in Sydney and 50 50 2004 2012 2020 2004 2012 2020 Melbourne have declined, driven by apartment Sources: CoreLogic; RBA rents. By contrast, vacancy rates have declined and rents have increased strongly in Perth, Graph 3.16 New Residential Property Listings* Graph 3.14 Rolling 28-day sum, weekly ’000 Sydney Melbourne ’000 Household Consumption and Income % % 12 12 Real, year-ended growth 10 10 2016–19 range Consumption 8 8 5 5 4 4 0 0 2020 Disposable income ’000 ’000 -5 -5 Brisbane Perth 6 6 -10 -10 4 4 % Saving ratio % 15 15 2 2 0 0 0 0 J FMAM J J A SOND J FMAM J J A SOND -15 -15 * Properties advertised for sale across multiple sources or multiple 1995 2000 2005 2010 2015 2020 times in the same 28-day period are only counted once Sources: ABS; RBA Sources: CoreLogic; RBA 44 R E S E R V E B A N K O F AU S T R A L I A
have increased, although liaison has suggested August and September, and to a lesser extent in that sales of greenfield land and new homes October. Victoria typically accounts for around have moderated a little following a period of one-third of national construction activity, so strong demand driven by policy measures, these restrictions weighed on dwelling and non- including the Australian Government’s residential building investment in the HomeBuilder scheme. Liaison indicated that the September quarter. time limits to qualify for HomeBuilder have Approvals for higher-density dwellings remain caused some builders to reach capacity for the very low nationally. The strict timelines on the remainder of the year. State government policies HomeBuilder scheme mean that higher-density are also supporting demand, particularly in construction projects are unlikely to qualify. Western Australia. The value of large alterations Developers have reported that sales of off-the- & additions has also increased strongly in recent plan apartments remained weak, with some months. developers delaying commencements of Construction activity in Melbourne was curtailed planned projects. by limits on the number of workers allowed on Forward-looking indicators for non-residential construction sites and restrictions on construction activity have weakened further; movements between construction sites in private non-residential building approvals have fallen significantly, and commencements of new Graph 3.17 private building projects fell in the June quarter Advertised Rents and Vacancy Rates* (Graph 3.19). As the existing pipeline of Sydney Melbourne % Vacancy rate Vacancy rate % commenced projects is worked through in 5 5 4 4 coming quarters, non-residential construction 3 3 activity is expected to fall. The pipeline of non- 2 2 1 1 mining infrastructure work also eased further in % Monthly rent growth Monthly rent growth % the June quarter, led by renewable electricity 1.0 1.0 projects. 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 2010 2015 2020 2010 2015 2020 * Seasonally adjusted Sources: CoreLogic; RBA; REINSW; REIV Graph 3.19 Graph 3.18 Non-residential Construction Indicators Detached Housing Activity Indicators Private sector ’000 AIG construction new ’000 $b Building approvals $b Nominal ABS approvals orders* 10 10 4 4 8 8 2 2 ’000 ’000 % Infrastructure work yet to be done* % Per cent of quarterly GDP 10 4 8 8 8 2 4 4 HIA Greenfield new home sales lot sales 6 0 0 0 2010 2015 2020 2010 2015 2020 2004 2008 2012 2016 2020 * Rescaled to have the same mean and variance as ABS approvals * Excludes resources and other heavy industry Sources: ABS; AIG; HIA; RBA; Research4 Sources: ABS; RBA S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 45
Policy has also cushioned the decline in The pandemic has interrupted business investment Australia’s trade Non-mining business investment, including Australia’s trade in goods and services has fallen non-residential construction, fell by 5 per cent in sharply since the outbreak of COVID-19 the June quarter, to be 9 per cent lower over the (Graph 3.23). Restrictions on international travel year. While sharp, the fall in investment was resulted in a collapse in exports and imports of smaller than had been expected. This was tourism, education and passenger transport largely because the fall in machinery & services. These are unlikely to recover until equipment investment was moderated by a international travel restrictions are eased, which significant take-up of tax incentives for is assumed to take place around the end of 2021 investment that were announced in March, such (see ‘Economic Outlook’ chapter). At the same as the expanded instant asset write-off. time, exports of resources and rural goods have Investment in computer software and research & development also fell in the quarter. Graph 3.20 Firms’ expectations for investment were little Machinery & Equipment Investment Private, non-mining sector, chain volume changed in the most recent ABS Capital $b $b Expenditure (Capex) survey, which was 18 18 conducted in July and August. Firms continue to report that they will substantially reduce 16 16 investment this financial year, including in 14 14 Capex survey machinery & equipment (Graph 3.20). All expectations* 12 12 industries expect to reduce investment over the coming year (Graph 3.21). However, the Capex 10 10 survey was conducted prior to the October 8 8 2005 2009 2013 2017 2021 Australian Government Budget, which * Average real quarterly spending implied by firms’ expectations; adjusted for past average differences between expected and realised expanded and extended tax incentives for spending, and deflated using RBA forecast for the implicit price deflator Sources: ABS; RBA business investment. These policies are expected to reduce the fall in machinery & equipment investment over the next two years Graph 3.21 by easing cash flow constraints (especially for Capital Expenditure by Industry* Nominal, financial years small businesses) and encouraging firms to $b $b Goods-related Services bring forward spending. Take-up of the policies Transport, postal & warehousing Expectations Other business Manufacturing is also expected to increase as the economic 14 services** 14 recovery continues and firms become more confident about future demand. 10 Rental, hiring 10 & real estate Mining sector investment increased by Other selected services*** Retail & wholesale trade 6 6 1 per cent in the June quarter as work on Utilities Construction replacement iron ore projects continued. Investment expectations from liaison and the 2 2 10 / 11 15 / 16 20 / 21 10 / 11 15 / 16 20 / 21 * Capex survey continue to suggest a modest Non-mining industries included in the ABS capital expenditure (Capex) survey; expectations are firms’ estimates of capital expenditure; adjusted for past average differences between expected and realised increase in spending in the year ahead, driven by spending ** Includes information media & telecommunications, finance & further work on iron ore and coal projects insurance, and professional, scientific & technical services *** Includes accommodation & food, administrative & support services, arts & recreation, and other services (Graph 3.22). Sources: ABS; RBA 46 R E S E R V E B A N K O F AU S T R A L I A
declined, and imports of consumption and level in the June quarter; producers sought to investment goods have fallen in line with capitalise on higher iron ore prices. However, weaker domestic demand. The decline in partial trade data and information from the imports was larger than in exports over the first Bank’s liaison program suggest that iron ore half of the year, so the trade surplus was higher export volumes declined in the September on average. That said, the surplus has been quarter as Australian firms undertook generally narrower in recent months, driven by a maintenance, and liquefied natural gas (LNG) pick-up in goods imports, which reflects the export volumes were affected by extended recovery in domestic demand. maintenance at some LNG facilities and weak Resource exports declined by around 2 per cent global demand. Coal exports also look to have over the first half of the year. The decline was led declined further in recent months. by lower coal exports because global demand Goods imports were very weak in the June for coal has been weak and some producers quarter, but have picked up more recently in line scaled back production in response to lower with the recovery in domestic demand. Imports prices (Graph 3.24). By contrast, iron ore export of motor vehicles have recovered particularly volumes increased further and reached a record strongly, following a pick-up in vehicle sales as a result of the significant take-up of tax incentives for investment in the June quarter. Graph 3.22 Mining Capital Expenditure* The outlook for the rural sector remains Nominal $b $b favourable 150 150 National accounts The Bureau of Meteorology has declared that La 120 120 Niña is underway. This weather pattern typically results in above-average rainfall across eastern 90 90 Previous Australia during spring and summer; this Estimates 60 60 generally provides favourable growing 30 30 conditions for cereals, although it also increases the risk of flooding (Figure 3.1). At the same 0 0 08 / 09 12 / 13 16 / 17 20 / 21 time, improved pasture conditions will continue * Estimates are firms’ expected capital expenditure; adjusted for past average differences between expected and realised spending to support farmers to further rebuild herds and Sources: ABS; RBA Graph 3.24 Graph 3.23 Resource Exports* Trade in Goods and Services Log scale, quarterly Current prices, monthly Mt Mt $b $b LNG (RHS) 35 35 Imports 200 12 25 25 Exports $b $b Iron ore Trade balance (LHS) 100 6 6 6 0 0 Coal (LHS) 50 3 -6 -6 2008 2012 2016 2020 2010 2012 2014 2016 2018 2020 * Seasonally adjusted by the RBA Sources: ABS; RBA Sources: ABS; RBA S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 47
Figure 3.1 : Chance of Exceeding Median Rainfall flocks, after the drought left the number of with government exemptions to travel sheep and cattle in Australia at record lows. restrictions that would allow the movement of Accordingly, the Australian Bureau of some agricultural workers across borders. Since Agricultural and Resource Economics and the start of the year, Chinese authorities have Sciences (ABARES) expects crop production to increase strongly in 2020/21, while meat Graph 3.25 production is expected to decline (Graph 3.25). Farm Production Volumes* 2015/16 = 100, financial year Note: This figure is licenced under the Creative index index Commons Attribution Australia Licence The pandemic has had a limited impact on 100 100 Total agricultural production to date, although weaker Livestock- related demand has weighed on prices for some higher- 75 75 value agricultural goods. Horticultural harvests later in the year could be affected by 50 1996 2001 2006 2011 2016 50 2021 international and domestic border restrictions, * Dotted lines represent ABARES’ preliminary estimates for 2019/20 and forecasts for 2020/21 which could disrupt the supply of labour, even Sources: ABARES; RBA 48 R E S E R V E B A N K O F AU S T R A L I A
introduced import restrictions and tariffs on certain agricultural exports from Australia; these will materially affect some sectors directly targeted by the measures. S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 49
50 R E S E R V E B A N K O F AU S T R A L I A
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