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Economics & Markets

Good news in Australia’s confidence

By Dr Shane Oliver
Head of Investment Strategy and Economics and Chief Economist, AMP Sydney, Australia

We’re by no means out of the woods, economically or epidemiologically speaking, but there’s certainly a number of optimistic indicators on our prospects heading into 2021. Extremely positive results from trials of three of the leading vaccine candidates, as well as the news that immunity may be longer-lasting than first thought1, are good reasons for optimism, and these developments have come on top of the most recent Westpac/Melbourne Institute survey which showed consumer sentiment already at its highest level since late 20132. Consumers appear to be particularly encouraged by the strength of the housing market, which in turn is being driven by the Reserve Bank’s commitment to hold interest rates at record lows for longer than had previously been dictated by policy. This effect seems to be overriding the other questions hanging over the housing market, such as the prospect of sustained high unemployment and lower immigration.

The survey shows that consumers are increasingly bullish about prospects for the broader economy over the next twelve months, and that this confidence is spilling over into a propensity to spend on major household items – good news for retailers this Christmas. Opinions on the future state of the labour market, however, were decidedly more pessimistic.

According to NAB’s monthly business survey, business confidence has also rebounded strongly to its highest level since mid-20193. This comes on the back of re-openings in Victoria, where confidence surged in October, although remaining lower overall there than in the rest of the country. Gains were shared across most industries, apart from mining (which has of late been operating in a vastly stronger climate to the rest of the economy) and transport, where obvious difficulties will persist as long as movement continues to be restricted.

The caveat here comes in the same survey’s assessment of business conditions for employment, which declined by 5%. This is a consistent theme at the moment, and a soft labour market looks as if it could potentially be an Achilles’ heel in the prospects for a full recovery. That said, I am not too worried about this as the labour market has already seen a stronger-than-expected recovery and if spending picks up, it will continue to improve albeit at a slower rate than has so far been the case.

Both of these surveys capture a slice of Victoria’s recovery, to various degrees, but none of the effects of developments on the vaccine front, so it’s likely that confidence will continue to improve into the new year, especially if the country continues to record low numbers of new infections. The impact of ongoing government support and particularly tax cuts, and monetary easing should also not be underestimated, giving businesses confidence to retain staff and ultimately hire more, as well as giving consumers the confidence to run down the huge June quarter spike in saving.

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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