MNI INSIGHT: RBA Sees Quicker Recovery Than Feared

By Lachlan Colquhoun

     SYDNEY(MNI) - The Reserve Bank of Australia is increasingly confident that

the domestic economy will recover more quickly than initially expected from the

coronavirus-driven downturn, helped by a resilient consumer and lower fuel

prices, MNI understands.

     While anticipating a major impact on inflation from the slumping oil price,

the RBA does not foresee ongoing deflation as the Australian economy recovers

into 2021. Lower petrol prices will also leave consumers more disposal income,

it considers.

     The Bank's outlook is in part fuelled by strong preliminary March retail

sales data showing the biggest on-month increase on record, at 8.2% m/m, driven

by a pre-lockdown spending surge.

     Although driven in part by panic buying of items such as toilet paper and

hand sanitiser, the RBA noted increased sales of office equipment and computers

as people prepared to work from home.

     The RBA sees this as a sign the Australian consumer remains buoyant,

unconstrained by high levels of household debt at 120% of GDP, after rate cuts

from 2019 and into 2020 relieved pressure on mortgage holders and enabled many

to form financial buffers.

     --UNEMPLOYMENT BOUNCEBACK

     There is an acceptance in Martin Place that unemployment will hit 10% by

mid-year, but the government's 'Jobkeeper' package has curtailed the worst. The

Bank believes employment will snap back quickly as businesses reopen,

epidemiological developments permitting.

     While resigned to a decline in services exports garnered from foreign

students and visitors, the RBA sees some of the tourism gap filled by more local

travellers unable to fly far, particularly if any reopening includes travel

links with New Zealand.

     Along with China, South Korea, Taiwan and New Zealand, the RBA sees

Australia's relative epidemiological successes allowing an earlier return to

normal economic activity - in contrast to the U.S. and Europe where the

reopening debate is only just getting underway.

     This sets up the Asia Pacific region for a more rapid recovery, fuelled by

China which the RBA already sees operating at 85% of usual levels, providing

continued demand for Australia's commodity. The weaker Australian dollar has

also acted as a "shock absorber".

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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