The Week Ahead (Jan 4-8): Australian Economy In Stable Recovery

Market participants in the week ahead are set to receive updates on the state of Australia’s economic recovery, while supportive monetary and fiscal policies help drive investors’ appetites toward riskier assets.

Preliminary data seem to show that the growth of Australia’s services and manufacturing sectors has maintained its positive momentum through the end of the fourth quarter of 2020, amid an easing of COVID-19-related restrictions, as well as following the largest contraction in the country’s GDP since at least the 1930s earlier in the year.

Pollyanna De Lima, economics associate director at IHS Markit, recently said that the Australian economic recovery was not only sustained in December but “growth also gathered momentum as the loosening of COVID-19 restrictions underpinned further improvements in demand for goods and services.”

(Click on image to enlarge)

IHS market australia PMIs maintain expansion in Q4 2020

This heightened level of demand has generally promoted a quickened pace of expansion in the nation’s private sector output – in fact, the quickest pace in five months. The renewed strength also appears to have helped labor market conditions, as De Lima observed that both goods producers and service providers continued to hire extra staff, the former to the greatest extent in close to three years.

However, she pointed out that one area in the country’s economy that “failed to improve was exports, with stricter lockdown measures in some nations, border controls and travel restrictions continuing to restrict external demand for Australian goods and services.” She added that the country’s latest fall in international sales was its eleventh in successive months.

Central Bank & Fiscal Fuel

Meanwhile, the Reserve Bank of Australia (RBA) committed to a more dovish monetary policy stance at its November meeting, including cutting its cash rate target to 0.10% from 0.25%, where it had resided since March, as well as purchasing $100 billion worth of government bonds with maturities ranging from around five to 10 years over the next six months.

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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