Economic update January 2020

3 min read

Developments in the global economy

The Coronavirus outbreak has sent ripples through global financial markets; disrupting worldwide trade and supply chains, pressuring asset prices and forcing multinational businesses to make decisions around trade and employee wellbeing. The Australian economy is currently suffering from the impacts of bushfires and drought and below trend consumer confidence, all of which have harmed - in particular- the tourism and farming sectors. Britain has been hit by a case of Brexit blues as the UK formally left the European Union.


The economic damage from the bushfires along Australia’s eastern seaboard is likely to exceed the $4.4bn record set by 2009’s Black Saturday blazes, Moody’s Analytics reported. Damage to fresh produce has put upward pressure on consumer prices. The coronavirus outbreak is further impacting the economy, with comparisons made to the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak, which also impacted stock and currency markets. So far the coronavirus impact is similar, but whether it follows the same longer-term pattern depends on how widespread the outbreak becomes. Sectors including education and tourism are likely to suffer the most, particularly whilst the Morrison government keeps travel restrictions in place. Simon Westaway, the executive director of the Australian Tourism industry Council said that the body is working on an estimate of the “significant” hit the sector will take from the ban on Chinese nationals entering Australia.

National housing finance data posted another robust gain in November as value of new homes was up 1.8%. On an annual basis, new lending was higher to 5.9% - the fastest growth since September 2017. Investor credit grew more strongly than owner-occupier loans over the month, at 2.2% and 1.6% respectively. However, owner occupier credit remains the primary recovery driver for housing that began May 2019, gaining 20.5% to November.

The Australian economy recorded another trade surplus in December, rounding out two straight years of monthly surpluses. Exports picked up 1.4% in December, 8.3% higher than a year ago, with export prices falling 5.2% in Q4. Import prices picked up 0.4% in Q4 amid moderate demand. Commodity exports such as iron ore and mineral fuels have slowly recovered in the last two months, after prices fell sharply over the September quarter. Despite ongoing drought and bushfires, rural-good exports rose in December. 

According to the Westpac-Melbourne Institute Index of consumer sentiment, consumer sentiment fell 1.8% in January to 93.4. A fall in confidence was expected, given the impact of the devastating bushfires. Underlying detail in the survey showed an increase in housing sentiment, including an 8.1% increase in the house price expectations index. The overall low level of confidence is consistent with soft consumer spending and overall economic outlook uncertainty.

Retail sales picked up in November with a better-than-expected result of 0.9%, taking annual growth to 3.3%. Indications are that Black Friday sales encouraged consumers to do their Christmas shopping early. Retail conditions have improved slightly, but remain depressed due to the current economic conditions and lower than trend consumer confidence. High household debt and low wages growth continue to weigh on consumer spending. A 0.9% fall in restaurant and takeaway spending was attributed to disruption related to the bushfires.

December quarter headline inflation rose 0.7%, taking the seasonally-adjusted annual inflation rate up to 1.8% from 1.7% in the previous quarter. It was the highest inflation rate since Q4 2018. Significant price rises occurred in tobacco (+8.4%), domestic travel (+7.3%) and fruit (+6.8%). Price falls occurred in international travel (-2.9%) and women’s garments (-2.5%). Core inflation prices increased 1.6% in Q4, consistent with previous quarters.

United States

US and China finalised the stage one trade agreement, signing the deal and releasing its full terms. In line with the announcement made before Christmas, the US will refrain from increasing further tariffs and will also halve the 15% rate introduced on circa US$120bn of imports in September 2019 to 7.5%. The 25% tariff on US$250bn of imports remain in place. President Trump also signed a trade agreement with Mexico (USMCA). Economic data showed the goods trade deficit widening in Q4. Furthermore, Trump’s impeachment trial has been passed up the Senate (Republican dominated), where the trial is taking place. Senators are convening to consider whether impeached President Donald Trump should be removed from office for committing ‘high crimes and misdemeanors’.

The US economy expanded at 2.1% in Q4 - the same as in Q3 – closing out a year in which GDP decelerated to its slowest pace in three years amid a continuing drag in business investments. Personal consumption slowed more than anticipated, reading 1.8% in the final quarter compared to 3.2% in Q3. The 2.3% growth in US gross domestic product for the full year was below the 2.9% increase from 2018 and the 2.4% gain in 2017. The Federal Reserve’s preferred inflation measure – the core personal consumption expenditure index – rose at an annualised pace of 1.3%.

The Federal Open Market Committee (FOMC) retained the Federal funds target rate unchanged at 1.50-1.75%. Chair Jerome Powell characterised economic growth as “moderate” and the labour market as “strong”, and reiterated that the FED’s see inflation returning to its objective of 2%.


The outbreak of the coronavirus sent shockwaves through the global financial markets with increasing levels of uncertainty evident in China and other regions. The World Health Organisation has declared a public health emergency of international concern. The epidemic has resulted in quarantine and travel restrictions imposed across the Chinese Tier 2 city of Wuhan as authorities attempt to prevent the spread of the virus. The response to stem the spread will create a drag on economic activity in China and its surrounding neighbours as infrastructure networks are closed and residents are confined to their homes. The outbreak comes at a period when the Chinese economy was seeing signs of stability due to prior monetary and fiscal policy enactment.

The official manufacturing PMI for China came at 50.0 for January as reported by the National Bureau of Statistics. The survey was conducted before the coronavirus outbreak. Chinese officials have warned that the survey would not encapsulate the impact of the new coronavirus outbreak, as the survey was conducted before January 20th. Services PMI fell to 53.0 in January.

China and the US have signed the ‘phase one’ trade deal. Although existing tariffs remain, China has agreed to buy an additional US$200 billion in US agricultural, manufacturing, energy and services exports over the next two years. China will provide greater access to sectors and will strengthen intellectual protection. Furthermore, authorities have cut the bank reserve requirement ratio by 0.5% to 12.5% in January, down from 14.5% one year earlier. This has helped boost credit growth by 10.7% over the year. Inflation remained at 4.5% in December, driven by doubling pork prices as African swine fever swept through China’s hog herds.

Japan’s Jibun Bank Manufacturing PMI was revised to 48.8, compared to December’s 48.4. The Services PMI read 51 for the month, pointing to the strongest expansion in the sector since September. New orders grew for the 42nd month and export sales increased. Japan’s consumer price inflation rose to 0.8% year-on-year in December from 0.5% in November – marking the highest rate since April 2019.


The Bank of England (BOE) stood pat in BOE Governor Mark Carney’s final meeting. Officials voted 7-2 to keep the key rate unchanged at 0.75%, belying investor expectations that the decision was on a knife-edge. BOE sets monetary policy to meet its 2% inflation target and to sustain growth and employment. According to Rightmove, UK house prices rose 2.3% over the month in December. Growth had been flat in previous months as Brexit uncertainty weighed on the property sector. On an annual basis, prices were 2.7% higher.

The UK has officially left the European Union after 47 years of membership with Brexit officially occurring on 31 January. The departure comes three years after the country voted by a margin of 52-48% to walk away since it joined in 1973. Prime Minister Boris Johnson now faces 11 months of talks to agree on a trade deal before transition period ends on December 31. The UK will follow EU laws during the transition period.

The 50th Annual Meeting of the World Economic Forum (WEF) was held in Davos, Switzerland. Business, government and civil society were gathered to discuss the most pressing global issues with a view to improving the state of the world. The overarching theme of the event was climate change and the challenges of building more sustainable economies. The WEF annual risk report survey listed climate related environment threats as the top five global risks likely to have a major economic impact over the next ten years.

Christine Lagarde, President of the European Central Bank, has launched a review of its monetary policy strategy, which was adopted in 1998 with some elements clarified in 2003. The review - to be concluded by year end - will encompass quantitative formulation of price stability, economic and monetary analyses and communication practices with all stakeholders. The ECB may reset the inflation goal and study alternative measures of price growth. Furthermore, the ECB has left the key rate and their quantitative easing program unchanged. 

For a more detailed summary, click here.

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Information current as at 30 January 2020. 

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