RBA bearish on investment outlook

1 minute read

RBA bearish on investment outlook

by Cameron Micallef 10 August 2020 1 minute read

The Reserve Bank of Australia has revised its outlook for dwelling investment as the second lockdown in Victoria is likely to have sharper deterioration in labour market conditions.

RBA bearish on investment outlook
August 10, 2020

In its monthly monetary policy update, RBA assistant governor Luci Ellis outlined three scenarios that the economy could take depending on how quickly the virus is contained and restrictions lifted.

All three scenarios – baseline, an upside and a downside – will see Australia’s unemployment rise and its GDP fall, but the levels change based on the health outcome.

The three scenarios all assume international borders will remain closed and travel will be restricted until the middle of next year.

The RBA’s new baseline scenario isn’t what one would normally consider optimistic, with unemployment expected to soar to almost 10 per cent by the end of the year, a figure that would be unthinkable at the start of the year.

Ms Ellis noted that the recovery is expected to be “slow and uneven”, with GDP to take “several years to return to the trend path expected prior to the virus outbreak”.

Among the scenarios discussed by Ms Ellis was the RBA’s outlook for dwelling investment, which she said has been further impact by newly imposed lockdown measures in Victoria, a sharper deterioration in labour market conditions and “more generalised uncertainty weighing on people’s decisions to buy homes”.

Ms Ellis added that prolonged restrictions on overseas migration would also hinder dwelling investment activity.  

“Demand will also be reduced during the period that international borders are closed, because population growth will be significantly lower,” she said.

The RBA assistant governor said the federal government’s HomeBuilder Scheme would “provide some countervailing support in the near term”, particularly for detached housing construction.

The full stimulatory impact of the HomeBuilder scheme is not expected to be felt until the back end of 2020, when the bulk of construction projects are due to commence.

Ms Ellis’ address follows Treasury’s decision to revise its forecast for the Australian economy in response to the economic impact of new COVID outbreaks in Victoria.

In a media conference held on Thursday (6 August), the Prime Minister revealed that additional restrictions in Victoria are estimated to cost the real economy by between $7 billion to $9 billion over the September quarter.

According to Mr Morrison, the Victorian economy is expected to bear 80 per cent of the cost ($6-7 billion), with the remainder representing a “preliminary estimate” on the broader impact on confidence in other states and territories and “supply chain impacts” from industry shutdowns in Victoria. 

Treasury also revised its forecast for the unemployment rate, from a peak of 9.25 per cent to 10 per cent.

The effective unemployment rate is also expected to hit the “high 13s”, with an increase in effective unemployment of between 250,000 to 400,000.  

To combat this the federal government has committed to extending the JobKeeper package, as well as creating a pandemic payment for Victorians.

RBA bearish on investment outlook
RBA bearish on investment outlook
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About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your... Read more

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