Domestic Economic Conditions - Reserve Bank of Australia
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3. Domestic Economic Conditions
A recovery in economic activity is underway and have also increased the financial buffers of
across the country, but is proceeding at an many households and businesses; an increase in
uneven pace. Some industries remain financial buffers is an unusual outcome during
constrained by mandated and voluntary social an economic downturn. Measures introduced
distancing, particularly in hospitality and by the Bank have supported financial market
tourism, while some other industries are feeling functioning and the flow of credit, and reduced
the effects of the broader economic downturn. interest rates for borrowers. All these measures
The recovery has also varied across the country. will encourage a swifter recovery. While earlier
The recent outbreak in Victoria and the fiscal measures were centred on supporting
associated strict lockdown measures induced a incomes and retaining jobs, recent
temporary setback there, but the economic announcements have been more targeted
recovery has continued elsewhere. Nationally, towards stimulating private demand, which had
more than half of the employment lost in the taken a significant hit because of the pandemic.
initial downturn has been regained, but It is also likely that the disruption to how
significant spare capacity remains in the labour businesses and households operate, work and
market. consume will lead to some structural change in
This recovery follows the biggest peacetime the economy and entail a period of adjustment.
contraction in the Australian economy since the More generally, and as set out in the ‘Economic
early 1930s. The national accounts confirmed Outlook’ chapter, a high degree of uncertainty
that the Australian economy contracted by will be a feature of the outlook for some time.
7 per cent in the June quarter, the largest
decline since the quarterly accounts began in Domestic COVID-19 cases have fallen
1959. The decline in GDP was immense, but less significantly
severe than in many other advanced economies Most states have recorded a small number of
because health outcomes here were less severe new daily COVID-19 cases over recent months,
and policy support was substantial. but many of these have been returned travellers
The near-term economic outlook will depend in hotel quarantine and there have been few
significantly on health outcomes, the prevention instances of local transmission that are not
of the spread of the virus, and advances in linked to known contacts. The number of daily
medical treatment. The substantial policy domestic COVID-19 cases over recent months
stimulus implemented by the Australian and has largely reflected case numbers in Victoria;
state governments and the Bank has played an these have declined significantly, from an
important role in supporting the economy and average of around 270 in July to below 5 in late
will continue to do so. Policy measures October, and local transmission has fallen to a
introduced since the start of the pandemic have few cases per fortnight (Graph 3.1).
helped to keep employment relationships intact
S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 37Since August, state governments outside of was a shallower but still noticeable dip in
Victoria have generally made targeted Sydney, while the other capital cities appeared
adjustments to social distancing restrictions in to have been less affected. Indicators of mobility,
response to local outbreaks, and have also outside of Melbourne, have been relatively
announced plans to ease restrictions further if steady or declined a little over the past month or
health outcomes allow it. Even so, some so and remain below their level at the start of
restrictions are likely to remain in place for some the year in all states. Survey measures of
time, possibly until a vaccine becomes widely business sentiment have continued to pick up
distributed. over recent months, while measures of
Restrictions in Melbourne have begun to be consumer sentiment increased sharply following
lifted under the Victorian Government’s the release of the Australian Government
‘roadmap’ for reopening the economy in steps, Budget (Graph 3.3).
which seeks to balance reopening the economy
and containing the virus. The first target was met
in late September, a touch ahead of schedule,
and restrictions were relaxed slightly. The next,
Graph 3.2
more substantive, step of reopening started in Mobility Indicators
late October. The last step of the plan, which By mode of transport or location, 1 March 2020 = 100
index Driving Transit stations index
would bring restrictions on activity in the state
100 100
Adelaide, Brisbane
broadly in line with other parts of the country, is Sydney and Perth
conditional on reaching a target of no new 50 50
Melbourne
locally acquired cases in a 14-day period.
index Walking Retail* index
Over recent months, individuals have also 100 100
voluntarily adjusted their behaviour in response
50 50
to concerns about the spread of the virus.
Reflecting a combination of mandated and 0
M A M J J A S O N M A M J J A S O N
0
voluntary responses, indicators of mobility * Retail data are state based
Sources: Apple; Google LLC (2020), ‘Google COVID-19 Community
dipped around July and August (Graph 3.2). Mobility Reports’, available at
https://www.google.com/covid19/mobility/ viewed on 4 November
2020; RBA
Given the lockdown measures in Victoria, there
was a marked fall in mobility in Melbourne; there
Graph 3.3
Graph 3.1 Business and Consumer Sentiment*
Net balance, deviation from long-run average
ppt ppt
Confirmed COVID-19 Cases in Australia Business
Three-day moving average, by state 0 0
no no Conditions
-30 -30
Victoria Confidence
450 450 -60 -60
ppt Consumer** ppt
10 10
300 300
0 0
New South Wales
-10 -10
150 150 -20 -20
Other states
and territories -30 -30
2008 2012 2016 2020
* Latest observations are September 2020 for business confidence and
0 0 conditions and October 2020 for consumer confidence
M A M J J A S O N ** Average of Westpac–Melbourne Institute and ANZ–Roy Morgan
2020 surveys
Sources: covidlive.com.au; government health departments; RBA Sources: ANZ–Roy Morgan; NAB; RBA; Westpac–Melbourne Institute
38 R E S E R V E B A N K O F AU S T R A L I AEmployment was quick to rebound worked remain well below their previous level
initially, but the improvement has (Graph 3.4). Average hours worked have almost
slowed more recently fully recovered for part-time workers, as activity
Employment and hours worked remain well has picked up in industries that employ a
below their pre-pandemic levels, as does relatively large share of part-time workers, such
activity. The initial recovery in employment was as hospitality. However, average full-time hours
faster than had been earlier expected, but the have recovered only about half of their initial fall
pace of improvement has slowed since August. (Graph 3.6). In September, around
This slowing at the national level has been partly 900,000 employees were working reduced hours
driven by developments in Victoria; between for economic reasons, over half of whom were
July and September employment there full-time workers. The number of people
decreased by 2.2 per cent while increasing by working reduced hours has steadily fallen in
1.9 per cent in the rest of Australia (Graph 3.4). recent months in most states and is around half
Timelier payroll data indicate that the number of the number in April, but has remained elevated
payroll jobs nationally are a bit lower than they in Victoria.
were in August.
Labour market conditions initially improved
quickly once health-related restrictions started
to be eased from May. Of the 870,000 employ- Graph 3.5
ment losses between March and May, about half Change in Payroll Jobs by Industry
Since week ending 14 March
have since been recovered, but employment in Public admin
Financial
September was still 3.3 per cent lower than in Utilities
Healthcare
Mining
March. Increases in employment have been Retail
Education
broad based across industries, although the Manufacturing 18 Apr*
All industries
number of payroll jobs remains below pre- Wholesale
Professional
pandemic levels in most cases (Graph 3.5). Admin
Transport 17 Oct
Rental (latest)
Consistent with the increase in employment, Construction
Other services
Agriculture
total hours worked nationally have recovered Info media
Arts
about half of their initial fall; the recovery has Accom & food
-40 -30 -20 -10 0 %
been stronger outside of Victoria but hours * The lowest weekly value of the aggregate payroll jobs index
Sources: ABS; RBA
Graph 3.4
Employment and Hours Worked Graph 3.6
February 2020 = 100
index
Employment Hours worked
index Average Hours Worked
hours hours
Part time
(RHS)
100 100 41 17
Rest of Australia
40 16
95 95
39 15
Victoria
Full time
(LHS)
90 90 38 14
37 13
85 85
F M A M J J A S F M A M J J A S 36 12
2020 2020 2004 2008 2012 2016 2020
Sources: ABS; RBA Sources: ABS; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 39Unemployment and other measures of since the pandemic began has been a sharp
underutilisation remain high decline in labour market participation. In
The unemployment rate increased from particular, of those people who lost employ-
5.2 per cent in March to 6.9 per cent in ment, a large share exited the labour force (at
September (Graph 3.7). The rise in unemploy- least temporarily); in many cases these people
ment has been smaller than initially expected, in were able to access government income
part because much of the labour market support programs (such as JobSeeker) that were
adjustment to the downturn was through expanded in response to the pandemic.
employees working fewer hours while retaining Although the number of people outside the
their jobs, rather than becoming unemployed. labour market has been steadily declining over
The retention of employees during this period recent months, there are still more than
has been strongly underpinned by the 200,000 people who left the labour force early in
JobKeeper program. Consistent with many the pandemic and are yet to return, most of
employees working fewer hours, broader whom are in Victoria. As restrictions continue to
indicators of spare capacity in the labour market ease, it is likely that more people will look to re-
remain high. The heads-based enter the labour force, encouraged by increasing
underemployment rate was around employment opportunities and tighter
11½ per cent in September, having declined a JobSeeker eligibility criteria (JobSeeker mutual
little from its highest ever rate in April. Hours- obligation requirements for recipients outside of
based measures of underutilisation – which Victoria were reinstated in August). To help
reflect the additional hours that unemployed gauge the effect of these various factors, the
and underemployed people would like to work ABS provides some alternative measures of
– have also declined from their recent peaks, but unemployment that include employees working
remain elevated. The number of people working zero hours and those employees who moved
zero hours for economic reasons in September out of the labour force in March and are yet to
2020 was still around four times as high as in return; these measures have declined in recent
September 2019. months but remain elevated (Graph 3.8).
Another key driver of the smaller-than-expected
increase in the measured unemployment rate
Graph 3.7 Graph 3.8
Labour Underutilisation Rates
Heads-based
Unemployment Rate
% % Comparison of measures
% %
14 14
18 18 Plus net flows out of labour force
Underutilisation rate* since March*
12 12
12 12
10 10
Plus employees with zero hours
for economic reasons
8 8
6 6
Unemployment rate 6 6
Underemployment rate**
0 0 Unemployment rate
1980 1988 1996 2004 2012 2020 4 4
M J S D M J S D M J S
* Sum of the unemployment and underemployment rates
2018 2019 2020
** Full-time workers on reduced hours for economic reasons and
part-time workers who would like, and are available, to work more hours * ‘Effective unemployment rate’ used by government
Sources: ABS; RBA Sources: ABS; RBA
40 R E S E R V E B A N K O F AU S T R A L I AThe jobs outlook remains subdued, but support for businesses and increased social
is improving assistance payments. State and territory govern-
Forward-looking indicators of employment such ments also provided support to households and
as job advertisements and vacancies have businesses, mainly in the form of relief from
picked up since May, but remain lower than taxes and fees and increased funding of public
their pre-pandemic levels (Graph 3.9). Surveys services.
and information from business liaison indicate More recent policies announced in the 2020/21
that employment intentions have improved but Australian Government Budget, released in early
remain subdued, and are mixed across October, were targeted at supporting the
industries. An elevated share of firms still expect recovery. The measures included bringing
to reduce headcount over the year ahead, but forward tax cuts to households and expanding
an increasing number of firms report that they and extending depreciation allowances to
expect to lift headcount or reinstate regular encourage business investment (Graph 3.10).
hours, contingent on continued improvement in Additional expenditure on infrastructure was
business conditions. Contacts expecting to also announced.
remain eligible for the JobKeeper extension tend
The net fiscal impact of the Australian Govern-
to be exposed to travel or tourism, or have
ment Budget on the economy is equivalent to
experienced significant revenue loss because of
around 7 per cent of GDP in 2020/21. This is
the restrictions in Melbourne.
mostly reversed over subsequent years. The
fiscal deficit of the Australian Government is
The Australian Government Budget expected to increase to 11 per cent of GDP in
contained further substantial fiscal 2020/21, as a result of the significant fiscal
support for the economy … support provided by COVID-19 stimulus policies
Following the outbreak of the pandemic, the and the decline in revenue alongside the
Australian and state governments announced decline in activity. This represents the largest
fiscal policy measures aimed at limiting the
contraction in activity and large-scale losses of
employment. The initial packages of fiscal
Graph 3.10
support from the Australian Government were
Australian Government Budget Measures
centred on the JobKeeper program, cash flow 2020/21 Budget, select measures
$b $b
Graph 3.9
20 20
Labour Market Indicators
% Employment intentions* ppt
Per cent of labour force
NAB survey
Near-term*
2.5 30
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(NSC) 10 10
2.0 15
Over forward estimates
Vacancies**
(ABS)
1.5 0
0 0
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2010 2015 2020 2010 2015 2020
Su
* Net balance for the following period; deviation from average; * Cost over the next two financial years, except for the investment asset
12-months-ahead measure seasonally adjusted by the RBA write-off and loss carry-back, which shows the cost over 2021/22 and
** Survey was suspended between May 2008 and November 2009 2022/23
Sources: ABS; ANZ; NAB; National Skills Commission (NSC); RBA Source: Australian Treasury
S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 41peacetime Australian Government fiscal deficit … and policy measures have continued
observed in Australia. By 2023/24, the deficit is to support household cash flow
expected to have declined to 3 per cent of GDP; Policy measures have provided significant
at that time, new policy measures would no support to household cash flow. As a result,
longer be contributing to the deficit, which household disposable income increased in the
would be driven instead by general government June quarter, despite the large contraction in
spending and automatic stabilisers such as economic activity, and is expected to have
ongoing elevated unemployment benefit increased further in the September quarter
payments and reduced taxation revenues. While (Graph 3.12). Income support has mostly come
Australian Government debt has increased due from the JobKeeper program, which increased
to spending measures and lower revenue, unincorporated business income and supported
interest payments are still expected to decline as labour income, and from the temporary increase
a share of GDP over the forecast period, in social assistance payments. Eligibility for
reflecting the decline in interest rates to JobKeeper was tightened in late September and
historically low levels (Graph 3.11). payments were reduced, in particular for part-
As well as supporting households and time workers. (For a discussion of income
businesses by adjusting taxes and transfers, the support policies in other economies, see ‘Box A:
Australian and state governments have added to Income Support Policies for Advanced
demand directly by the provision of public Economies during the COVID-19 Pandemic’.)
goods and services. Public consumption Household cash flow has been further boosted
increased by 3 per cent in the June quarter, and for those households who made early
was the main source of expenditure growth in withdrawals from superannuation since April;
the economy, led by state and local government these withdrawals have totalled $35 billion,
spending. Public investment is likely to increase equivalent to around 10 per cent of quarterly
over coming quarters as ‘shovel ready’ projects household disposable income. In aggregate, the
get underway. increase in cash flow from these sources has
been partly offset by a decline in other income,
partly driven by a fall in financial income
alongside steep declines in equity prices earlier
in the year.
Graph 3.12
Graph 3.11
Household Disposable Income
Australian Government Interest Payments Nominal year-ended growth
2020/21 Budget, per cent of GDP % %
% Treasury
%
forecasts
1.5 1.5
5 5
Gross
1.0 1.0
Net
0.5 0.5 0 0
0.0 0.0 Total Unincorporated businesses Tax payable
Labour Social assistance Other*
-5 -5
-0.5 -0.5 2010 2012 2014 2016 2018 2020
93 / 94 99 / 00 05 / 06 11 / 12 17 / 18 23 / 24 * Includes financial income, interest payable and other
Source: Australian Treasury Sources: ABS; RBA
42 R E S E R V E B A N K O F AU S T R A L I AThe Australian Government Budget included travel, as spending by Australians travelling
policies that will provide additional support to overseas typically accounts for around 5 per cent
many households in 2020/21. In addition to of consumption.
bringing forward tax cuts, the low and middle The prevalence of the virus and the
income tax offset will continue to be available accompanying activity restrictions weighed
for this financial year. These measures are heavily on household spending in Victoria in the
expected to reduce household income tax by September quarter. Retail sales fell sharply in
around $24 billion over the next two years, August, and information from the Bank’s liaison
mostly concentrated in 2021/22. Pensioners and program indicates that store closures severely
some other households will also receive two impacted sales growth in Melbourne. Retailers
$250 payments, to be paid from November anticipate that conditions will improve
2020 and early 2021, in addition to the two substantially alongside health outcomes and as
payments of $750 received earlier this year. trading restrictions are eased over coming
months.
Income support has enabled a swift
The increase in household income and
rebound in spending since restrictions
contraction in consumption in the June quarter
were lifted
meant the household saving rate increased
A range of partial indicators suggest household sharply to 20 per cent, the highest it has been
spending has partly recovered over the past six since 1974 (Graph 3.14). Much of the increase in
months, supported by the easing in restrictions the saving rate was due to restrictions on
on activity and policies to support household household activity and reduced opportunity to
cash flow. After declining by 13 per cent over consume in the quarter, but precautionary
the first half of the year, household consumption savings by some households concerned about
is forecast to increase by close to 10 per cent future income would also have contributed.
over the second half. Some survey indicators suggest that households
Consumption patterns have shifted considerably in most income brackets had a higher rate of
as households and retailers have adjusted to saving over recent quarters; but that is likely to
restrictions. Sales of household goods and food obscure some significant variation within each
remained elevated in September. Spending at group. Households are expected to consume a
cafes & restaurants improved but remained
below its pre-COVID level (Graph 3.13). Online
retail sales continued to grow strongly in recent Graph 3.13
months, to account for more than 10 per cent of Retail Sales Values
December 2019 = 100
total retail sales. Sales of motor vehicles also index index
Household goods Rest of
increased strongly in many states. 120
Australia
120
Food
Spending on discretionary services has 100 100
remained weak compared with other types of Other*
Total Victoria
80 80
consumption, although there are signs of
improvement in some areas as restrictions ease. 60
Cafes &
60
Clothing &
For example, payments data and information footwear restaurants
40 40
from the Bank’s liaison program point to an
20 20
increase in domestic travel spending from its N D J F M A M J J A S N D J F M A M J J A S
2019 2020 2019 2020
trough in the June quarter. Some of this * Includes department stores and other retailing
expenditure is likely to be instead of overseas Sources: ABS; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 43larger share of their income as opportunities to where lower dwelling investment in previous
spend increase and household income declines years has limited the supply of new rental stock.
alongside the tapering in fiscal policy support. More generally, lower rental income could
present cash flow challenges for some property
Housing market conditions across the investors if weak rental market conditions
country are uneven continue, and may also weigh on investor
Housing prices in Melbourne and Sydney have demand for new properties.
declined since the August Statement, while
prices have increased in the other capital cities Policy is supporting detached housing
and regional Australia (Graph 3.15). New listings construction
have increased in most cities since August, but Fiscal and monetary policy measures are
remain a little below average for this time of year supporting conditions for detached residential
(Graph 3.16). The exception was Melbourne, construction in the near term. Building
where new residential property listings fell approvals for detached dwellings rose strongly
sharply because of the restrictions that were in over the September quarter (Graph 3.18). Survey
place, but rebounded strongly in October as measures of new orders for detached homes
restrictions on in-person auctions and
inspections were lifted. Auction clearance rates
declined in September to below 40 per cent in Graph 3.15
Housing Prices
Melbourne, and many scheduled auctions were January 2000 = 100, seasonally adjusted
index index
withdrawn, but recovered to around 60 per cent
350 350
in October. Auction clearance rates in Sydney Melbourne Hobart
have increased to around 70 per cent over the 300
Canberra
300
Brisbane
same period, and auction volumes have been 250 250
Adelaide
Perth
around average. 200 200
Sydney Darwin
Rental vacancy rates remain elevated in Sydney, 150 150
and have increased further in Melbourne 100 100
(Graph 3.17). Advertised rents in Sydney and
50 50
2004 2012 2020 2004 2012 2020
Melbourne have declined, driven by apartment
Sources: CoreLogic; RBA
rents. By contrast, vacancy rates have declined
and rents have increased strongly in Perth,
Graph 3.16
New Residential Property Listings*
Graph 3.14 Rolling 28-day sum, weekly
’000 Sydney Melbourne ’000
Household Consumption and Income
% % 12 12
Real, year-ended growth
10 10 2016–19 range
Consumption 8 8
5 5
4 4
0 0 2020
Disposable income ’000 ’000
-5 -5 Brisbane Perth
6 6
-10 -10
4 4
% Saving ratio %
15 15 2 2
0 0 0 0
J FMAM J J A SOND J FMAM J J A SOND
-15 -15 * Properties advertised for sale across multiple sources or multiple
1995 2000 2005 2010 2015 2020 times in the same 28-day period are only counted once
Sources: ABS; RBA Sources: CoreLogic; RBA
44 R E S E R V E B A N K O F AU S T R A L I Ahave increased, although liaison has suggested August and September, and to a lesser extent in
that sales of greenfield land and new homes October. Victoria typically accounts for around
have moderated a little following a period of one-third of national construction activity, so
strong demand driven by policy measures, these restrictions weighed on dwelling and non-
including the Australian Government’s residential building investment in the
HomeBuilder scheme. Liaison indicated that the September quarter.
time limits to qualify for HomeBuilder have Approvals for higher-density dwellings remain
caused some builders to reach capacity for the very low nationally. The strict timelines on the
remainder of the year. State government policies HomeBuilder scheme mean that higher-density
are also supporting demand, particularly in construction projects are unlikely to qualify.
Western Australia. The value of large alterations Developers have reported that sales of off-the-
& additions has also increased strongly in recent plan apartments remained weak, with some
months. developers delaying commencements of
Construction activity in Melbourne was curtailed planned projects.
by limits on the number of workers allowed on Forward-looking indicators for non-residential
construction sites and restrictions on construction activity have weakened further;
movements between construction sites in private non-residential building approvals have
fallen significantly, and commencements of new
Graph 3.17 private building projects fell in the June quarter
Advertised Rents and Vacancy Rates* (Graph 3.19). As the existing pipeline of
Sydney Melbourne
% Vacancy rate Vacancy rate % commenced projects is worked through in
5 5
4 4
coming quarters, non-residential construction
3 3 activity is expected to fall. The pipeline of non-
2 2
1 1
mining infrastructure work also eased further in
% Monthly rent growth Monthly rent growth % the June quarter, led by renewable electricity
1.0 1.0
projects.
0.5 0.5
0.0 0.0
-0.5 -0.5
-1.0 -1.0
2010 2015 2020 2010 2015 2020
* Seasonally adjusted
Sources: CoreLogic; RBA; REINSW; REIV
Graph 3.19
Graph 3.18
Non-residential Construction Indicators
Detached Housing Activity Indicators Private sector
’000 AIG construction new ’000 $b Building approvals $b
Nominal
ABS approvals orders*
10 10 4 4
8 8 2 2
’000 ’000 % Infrastructure work yet to be done* %
Per cent of quarterly GDP
10 4 8 8
8 2 4 4
HIA Greenfield
new home sales lot sales
6 0 0 0
2010 2015 2020 2010 2015 2020 2004 2008 2012 2016 2020
* Rescaled to have the same mean and variance as ABS approvals * Excludes resources and other heavy industry
Sources: ABS; AIG; HIA; RBA; Research4 Sources: ABS; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 45Policy has also cushioned the decline in The pandemic has interrupted
business investment Australia’s trade
Non-mining business investment, including Australia’s trade in goods and services has fallen
non-residential construction, fell by 5 per cent in sharply since the outbreak of COVID-19
the June quarter, to be 9 per cent lower over the (Graph 3.23). Restrictions on international travel
year. While sharp, the fall in investment was resulted in a collapse in exports and imports of
smaller than had been expected. This was tourism, education and passenger transport
largely because the fall in machinery & services. These are unlikely to recover until
equipment investment was moderated by a international travel restrictions are eased, which
significant take-up of tax incentives for is assumed to take place around the end of 2021
investment that were announced in March, such (see ‘Economic Outlook’ chapter). At the same
as the expanded instant asset write-off. time, exports of resources and rural goods have
Investment in computer software and research &
development also fell in the quarter.
Graph 3.20
Firms’ expectations for investment were little Machinery & Equipment Investment
Private, non-mining sector, chain volume
changed in the most recent ABS Capital $b $b
Expenditure (Capex) survey, which was
18 18
conducted in July and August. Firms continue to
report that they will substantially reduce 16 16
investment this financial year, including in 14 14
Capex survey
machinery & equipment (Graph 3.20). All expectations*
12 12
industries expect to reduce investment over the
coming year (Graph 3.21). However, the Capex 10 10
survey was conducted prior to the October 8 8
2005 2009 2013 2017 2021
Australian Government Budget, which * Average real quarterly spending implied by firms’ expectations;
adjusted for past average differences between expected and realised
expanded and extended tax incentives for spending, and deflated using RBA forecast for the implicit price deflator
Sources: ABS; RBA
business investment. These policies are
expected to reduce the fall in machinery &
equipment investment over the next two years Graph 3.21
by easing cash flow constraints (especially for Capital Expenditure by Industry*
Nominal, financial years
small businesses) and encouraging firms to $b $b
Goods-related Services
bring forward spending. Take-up of the policies Transport, postal &
warehousing
Expectations
Other business
Manufacturing
is also expected to increase as the economic 14
services**
14
recovery continues and firms become more
confident about future demand. 10
Rental, hiring
10
& real estate
Mining sector investment increased by Other selected
services***
Retail & wholesale trade
6 6
1 per cent in the June quarter as work on
Utilities
Construction
replacement iron ore projects continued.
Investment expectations from liaison and the 2 2
10 / 11 15 / 16 20 / 21 10 / 11 15 / 16 20 / 21
*
Capex survey continue to suggest a modest Non-mining industries included in the ABS capital expenditure (Capex)
survey; expectations are firms’ estimates of capital expenditure;
adjusted for past average differences between expected and realised
increase in spending in the year ahead, driven by spending
** Includes information media & telecommunications, finance &
further work on iron ore and coal projects insurance, and professional, scientific & technical services
*** Includes accommodation & food, administrative & support services,
arts & recreation, and other services
(Graph 3.22). Sources: ABS; RBA
46 R E S E R V E B A N K O F AU S T R A L I Adeclined, and imports of consumption and level in the June quarter; producers sought to
investment goods have fallen in line with capitalise on higher iron ore prices. However,
weaker domestic demand. The decline in partial trade data and information from the
imports was larger than in exports over the first Bank’s liaison program suggest that iron ore
half of the year, so the trade surplus was higher export volumes declined in the September
on average. That said, the surplus has been quarter as Australian firms undertook
generally narrower in recent months, driven by a maintenance, and liquefied natural gas (LNG)
pick-up in goods imports, which reflects the export volumes were affected by extended
recovery in domestic demand. maintenance at some LNG facilities and weak
Resource exports declined by around 2 per cent global demand. Coal exports also look to have
over the first half of the year. The decline was led declined further in recent months.
by lower coal exports because global demand Goods imports were very weak in the June
for coal has been weak and some producers quarter, but have picked up more recently in line
scaled back production in response to lower with the recovery in domestic demand. Imports
prices (Graph 3.24). By contrast, iron ore export of motor vehicles have recovered particularly
volumes increased further and reached a record strongly, following a pick-up in vehicle sales as a
result of the significant take-up of tax incentives
for investment in the June quarter.
Graph 3.22
Mining Capital Expenditure* The outlook for the rural sector remains
Nominal
$b $b
favourable
150 150
National accounts The Bureau of Meteorology has declared that La
120 120 Niña is underway. This weather pattern typically
results in above-average rainfall across eastern
90 90
Previous Australia during spring and summer; this
Estimates
60 60 generally provides favourable growing
30 30 conditions for cereals, although it also increases
the risk of flooding (Figure 3.1). At the same
0 0
08 / 09 12 / 13 16 / 17 20 / 21 time, improved pasture conditions will continue
* Estimates are firms’ expected capital expenditure; adjusted for past
average differences between expected and realised spending to support farmers to further rebuild herds and
Sources: ABS; RBA
Graph 3.24
Graph 3.23
Resource Exports*
Trade in Goods and Services Log scale, quarterly
Current prices, monthly Mt Mt
$b $b
LNG
(RHS)
35 35
Imports
200 12
25 25
Exports
$b $b Iron ore
Trade balance (LHS)
100 6
6 6
0 0 Coal
(LHS)
50 3
-6 -6 2008 2012 2016 2020
2010 2012 2014 2016 2018 2020 * Seasonally adjusted by the RBA
Sources: ABS; RBA Sources: ABS; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 47Figure 3.1 : Chance of Exceeding Median Rainfall
flocks, after the drought left the number of with government exemptions to travel
sheep and cattle in Australia at record lows. restrictions that would allow the movement of
Accordingly, the Australian Bureau of some agricultural workers across borders. Since
Agricultural and Resource Economics and the start of the year, Chinese authorities have
Sciences (ABARES) expects crop production to
increase strongly in 2020/21, while meat
Graph 3.25
production is expected to decline (Graph 3.25).
Farm Production Volumes*
2015/16 = 100, financial year
Note: This figure is licenced under the Creative index index
Commons Attribution Australia Licence
The pandemic has had a limited impact on 100 100
Total
agricultural production to date, although weaker Livestock-
related
demand has weighed on prices for some higher- 75 75
value agricultural goods. Horticultural harvests
later in the year could be affected by 50
1996 2001 2006 2011 2016
50
2021
international and domestic border restrictions, * Dotted lines represent ABARES’ preliminary estimates for 2019/20
and forecasts for 2020/21
which could disrupt the supply of labour, even Sources: ABARES; RBA
48 R E S E R V E B A N K O F AU S T R A L I Aintroduced import restrictions and tariffs on
certain agricultural exports from Australia; these
will materially affect some sectors directly
targeted by the measures.
S TAT E M E N T O N M O N E TA R Y P O L I C Y – N O V E M B E R 2 0 2 0 4950 R E S E R V E B A N K O F AU S T R A L I A
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