Over the last few weeks we have seen each of our four major banks update their economic forecast and also their forecast for our property markets.
In all cases these have been in a positive direction as it has become clear that while our recession was deep, it is now over and our property market are already moving forward.
This week NAB Economics upgraded their near-term forecasts for GDP and unemployment ahead of the national accounts Q3 GDP which be release in early December.
NAB now expect GDP growth of around 4% in Q3 driven by a strong rebound (around 7.5%) in consumption.
NAB also see a smaller hit to the labour market with the unemployment rate to peak at 7.4% in late 2020, down from their earlier forecast of unemployment topping out at 8% in early 2021.
The key driver of the banks forecast upgrade has been a marked improvement in consumer activity - the NAB’s transaction data have shown a rapid rebound across states once restrictions are removed.
NAB expect house prices to rise moderately over the next couple of years.
NAB expect house prices gains of around 5% and 6% in each of the next two years, respectively.
Sydney prices are expected to increase by 4.4% over 2021 and 6% over 2022 while Melbourne is expected to rise by slightly less (3.6% and 5.4% in 2021 and 2022).
Lower interest rates will be a key support to prices going forward, while the impact of a weaker labour market appears to have been mitigated by government support (to date).
However, NAB believes the largest markets will no doubt be impacted by slower population growth, and therefore we expect stronger growth in prices across the other capitals.
However, NAB have downgraded their growth outlook from late 2021 onwards.
Despite expecting a stronger near-term rebound, the private-sector weakness that was in place pre-virus will likely reassert itself.
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In particular, high unemployment will weigh on already- weak income growth and this, in combination with weak population growth, will see consumer spending slow into 2022.
As such, at the end of 2022 NAB expect unemployment to remain around 0.5ppt higher than its pre- COVID level despite GDP having recovered a year earlier.
Inflation will therefore remain weak at 1.7% - a little below the RBA’s target.
The outlook remains highly uncertain and the pace of recovery could be uneven.
NAB explains that uncertainty around the outlook remains high and further rounds of COVID-19 outbreaks pose a risk until a widely available vaccine is available.
NAB have assumed that while there may further domestic outbreaks of the virus, that these do not result in protracted lockdowns and that any further outbreaks are effectively contained with little impact on aggregate activity.
Beyond the pandemic risk, confidence for both consumers and business remains an important factor for a sustainable recovery in the private sector, where NAB continue to view the recent improvement in confidence as fragile – depended on activity continuing to rebound strongly.
The outlook for population growth is also uncertain and NAB assume that the international border will remain closed until mid-to-late 2021.
In recent years, population growth has been a key driver of demand and had an important influence in the housing market.
Slower population growth will weigh on demand as well as reduce labour supply growth, but how significantly remains unclear
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