U-shaped recovery likely for Australia after 7% GDP fall in first half: HSBC
SYDNEY - Australia may see a 7.5% fall in GDP for the first half of 2020 followed by a U-shaped recovery, according to Paul Bloxham, HSBC's Chief Economist for Australia/New Zealand.
He sees the timing of border re-opening, and its effect on migration and tourism, as a key risk for the strength of the recovery.
"Almost two months into the pandemic there are some things that are clear," Bloxham says.
"Services consumption contracted sharply in late March and April, and although retail sales picked up sharply, too, this is expected to be far outweighed by the services decline.
"Service exports have fallen sharply, with Sydney and Melbourne airport arrivals down 97% y-o-y and 98% y-o-y in April, respectively.
"Port and ABS data for March show that commodity exports have continued to grow. Business conditions surveys suggest sharp contractions in March.
"Construction is harder to assess. Australia has not been in full lockdown mode, so construction sites have remained open.
"Business surveys suggest a sharp fall in investment intentions, although much will depend on how soon containment measures are lifted.
"With very few new cases, policymakers have begun to reopen parts of the economy from April 27 onwards, so local activity should start to pick up in May, assuming reopening occurs without a resurgence in case numbers.
"Our central case sees a modest contraction in GDP in 1Q (about 0.5%), a sharp contraction in 2Q (about 7%), stable numbers in 3Q, and a strong bounce-back from 4Q onwards.
"Of course, there are clear risks around this 'U-shaped' central forecast.
"In particular, with the borders set to remain closed or heavily constrained for some time, tourism and migration are unlikely to recover quickly.
"Weak migration could weigh on demand for housing (a downside risk for housing prices), consumer goods and services, and infrastructure.
"Our central case assumes some permanent loss of output largely due to more limited cross-border people movement.
"This is also a key factor driving the risk of an 'L-' or 'W-shaped' recovery (a 20% chance, in our view). Conversely, we also see a 20% chance that the recovery is stronger and thus more 'V-shaped'."