The second quarter GDP release earlier this week (see here for details) allows us to update our Conus model for Australia, Queensland and the various LGAs in our region.
Australia’s second quarter GDP fell by 7.0% q/q for a 6.3% y/y decline. Although we got data for the Queensland Q2 State Final Demand (the domestic side of the state economy) last week, which showed a 5.9% q/q decline, we will have to wait until November before we get the Treasury’s estimate of Gross State Product. Our own model, at this stage, is projecting a 5.3% q/q GSP decline which would mean a 3.6% y/y drop. This is a significantly better result that nationally, although clearly still a very sharp contraction.
Our model is projecting y/y Q2 Gross Regional Product declines in double-digits for those LGAs with a heavy reliance on tourism; Cairns, Gold and Sunshine Coast, Port Douglas and Whitsundays all falling more than 11%.
By the end of 2020 our model is projecting a GDP fall of 4.8% (somewhat better than the official forecast from the RBA which is a drop of 6%) after another negative quarter in Q3 (-1.3% q/q) on the back of the extended Victorian lock-down, which we now know will not be eased until at least the end of the third quarter.
The result in QLD, where so far the health outcomes have been better and lock-downs far less restrictive, is much better with a y/y decline in GSP Q4 of 2.3% (less than half the fall seen nationally) and a positive quarterly result in both Q3 and Q4.
Again, in those areas where tourism is important we see Gross Regional Product declines much larger; Cairns, Gold and Sunshine Coasts and Whitsundays all seeing GRP declines in excess of 7% year-on-year while Douglas could be as weak as 13.6% down by the end of 2020.
Our expectations for unemployment are also a little more optimistic than the RBA (who are suggesting an unemployment rate as high as 10% by year end). We expect the unemployment rate nationally to only get a little above 8% but as high as 9.3% in Queensland. The fact that JobKeeper has been extended until March 2021 means that those areas where many businesses will still be suffering very weak turnover, even by year end, will continue to have their unemployment rates artificially lowered by the distortion in the labour market caused by JobKeeper. This is why, despite much weaker growth projections, the unemployment rate forecasts in these areas (such as Cairns and Sunshine Coast) are similar to the State averages. Once JobKeeper ends in March 2021, unless there has been some return to a more normal tourism market (which looks very unlikely), we can expect to see these rates move higher in those areas being supported by the Federal payments.