So what are the positives? Well it has been very easy to write about the potential doom and gloom around the pandemic ranging from wobbly residential markets to vacant office buildings, so perhaps it is time to step back and take a look at the bigger picture. Readers need to be warned, only positive data will be selected this week 😉

Despite China being hung out as the bad guy at present by various government and media departments, they remain Australia’s largest trading partner and continue to demonstrate resilience and growth in their economy. Automobile production in China has grown 17.9% year on year from June, their manufacturing index improved to 50.9 which is slightly positive on the neutral stance of 50.0.

The USA is also starting to demonstrate some resilience, some of which was forecast months ago by leading economists who picked the early signs. “The solidly performing US CEIC Leading Indicator dropped significantly in the months of March and April 2020 when the COVID-19 pandemic started to take its toll. The April value of 16.6 remains the lowest on record. What followed in May was a recovery of the stock market, improving labour market indicators and a weak revival in the housing and automotive markets. June data revealed that the housing market is approaching its pre-crisis levels, consumer confidence is improving and the purchasing managers' index jumped to its highest value since April 2019.” So whilst the media continue to portray America as a basket case suffering from internal racial upheaval, a pandemic out of control and a leadership in constant crisis, the reality must be that many Americans are actually getting on with the business of getting on. With a population of circa 330 million people, their numbers of positive cases are always going to look outrageous for a country with a population pushing just 26 million people.

The international monetary fund makes the following statements in their June address regarding world economic growth and it is no wonder that many businesses and individuals alike are feeling depressed with what has occurred so far in 2020. “Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent.” So whilst 2020 quite literally has been extremely unpleasant, the expectation is that 2021 should be a solid turnaround. The following table highlights part of the message that simply isn’t getting through general media channels at present. As we all know, forecasts and projections with this virus tend to make fools of all us at some point, so whilst there will be some change to the table as new inputs are added, the IMF is clearly forecasting calmer seas ahead, perhaps even some tailwinds.

Unemployment rates for many of the large economies have performed better than expected. Whilst America has undoubtedly suffered quite badly to date, it has also shown signs that the economy is starting to improve again, much to many commentator’s surprise. With a Federal Election this year, you can be sure that every chance to reinvigorate the economy will be taken. Trump doesn’t like to lose at anything, so being able to point to a recovery will potentially win him many votes.

These are really important economic indicators for advanced economies and if we are to believe the IMF forecasts, and to date, there is no reason not to, then 2021 should look more like 2019. In fact, it is how we plan for 2021 that looks increasingly more important for whether the rebound is reactionary or proactive in what sectors contribute the most to Australia’s whole of economy outook.

Consumer sentiment remains low in Australia, but it has improved from the depths experienced in March and April where Australia went into its own version of lockdown. The most recent increases in cases in Victoria, New South Wales and Queensland may see this sharp rebound slow somewhat. However whilst the line continues to point up, Australian’s are becoming less pessimistic. This is highly important if we are to get people back to work and the economy moving.

How has this all translated into the property market? The new housing sector and land sales have rebounded quite strongly with many developers recording sales rates above pre-covid levels. The established housing market has remained firm at the top end and a glut of properties for sale in the established market has not eventuated. In part due to excellent timing with the Jobseeker/keeper packages as well as a pause in mortgage repayments by the banks. At some point these initiatives must end, so at present any expectation around significant price collapses have been pushed further down the road. Hopefully far enough that fewer and fewer people need to rely on either or both.

Many regional centres that remained unaffected by the virus in their communities are also experiencing very strong residential sales in the new market which has been heightened through the stimulus package. This has created strong employment growth opportunities and should encourage local unemployment rates to fall throughout the second half of 2020. The downstream multipliers from housing construction should not be underestimated, particularly in these centres that have struggled in a post resource boom environment.

The industrial market continues to improve coming from a very strong base. Logistics remain the flavour of the month with suppliers struggling to keep up with the demands being placed on this sector. This is not a reaction to the pandemic, but a continuation of the fundamentals that have demonstrated incremental improvement over the past two to three years. There is a reason many big publicly listed property trusts are chasing this sector and it is because the stability of income is often superior to many other commercial options.

Neighbourhood retail also remains in strong demand and as written about in previous newsletters/blogs, there is a very real opportunity for a reinvention to occur in this space. With a recent study published by the University of Queensland about the gentrification of middle ring suburbs, those within 5km-15km’s of the CBD, this sector can be part of something much bigger than just grocery retailing.

One final point which visually demonstrates how Australia’s exports are highly reliant on China. Whilst the author has no intention of entering into the geo-politics of whether China or the USA are acting as responsible world super-powers, Australia cannot expect to abruptly cut itself off from China without experiencing significant, long term economic damage.

Assuming Australia can continue or return to better relations with China and navigate a course where it is not forced to choose sides, the recovery from this pandemic is likely to be faster. However, current circumstances have given the nation pause for thought on how to grow a manufacturing base, how to add value to our outstanding natural resources, where funding is most needed to secure the future, the importance of certain education outcomes and how world markets are in fact greater than our current dependent profile highlights. 2021 will be a year of opportunities, because if 2020 has taught us just one thing; it is that everything is up for discussion and the status quo is due for change.

Matthew Gross | Director

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