Takeaways from Bill Evans

Bill Evans is a senior economist with Westpac. He has done very good interpretation of the Federal Budget with some interesting takeaways for our business leaders. In addition to the articles I have separately written on the instant cash write off and the wage subsidy along with the bringing forward of personal tax cuts originally intended for 2022 I offer the following opinions.

The AUD relative to the USD will go up to 80c and remain there until June 2022. China will outperform the US and will drive our dollar higher relative to the US with their demand for our iron ore in particular. The cash rate will go down next month to 0.1% with corresponding downward pressure on interest rates being paid by business and personal loans. Bill thinks the fixed mortgage rate will come under 2% in 2021. Variable rate spread to fixed rate getting bigger.

Unemployment he thinks will remain stubborn at or above 7% despite all the stimulus and might have gone above 10% had the stimulus not occurred. He thinks it will take the best part of a decade to reduce the unemployment rate to desired levels so there is a tough road ahead perhaps surprising nobody.

The eye watering debt is still low when compared to many of our western world counterparts and represents opportunity for this country to spend our way out of the doldrums without relatively increasing our debt servicing ratio to unmanageable proportions. My editorial on this would be that it is easy to spend, it is much harder to stop spending once you start so watch this space.

Bill thinks there is additional expenditure in the JobSeeker space that is needed, not announced but that will happen with his expectation that further announcements will happen closer to Christmas in this regard costing perhaps $4 Billion a quarter forever to increase the basic level of unemployment benefits to a manageable level.

Bill commented on trade tensions. He thinks roughly 66% of our trade with China is very safe, the other 1/3 is at risk. Agriculture in particular is at risk in his opinion.

Assumption of Vaccine in the second half of next year critical to confidence in markets. Attention will turn from counting new cases to watching vaccine progres. Melbourne confidence well below the rest of Australia unsurprisingly being reflected in mobility and in credit card transactions. The takeaway here is that as Melbourne recovers, so will the national numbers and pretty quickly he expects.

Housing market likely to get a boost with changes to the responsible lending standards. Whilst not as attractive in our view as Rural Land, it is likely that standalone housing will outperform towers. Deferred loan build up most particularly a problem in Melbourne. He thinks 2022 or 2023 will be the time that the deferrals wash out and housing will then kick ahead. Population growth will impact housing pricing with migration being much lower with borders closed again causing prices to pause for a year, then start to revert to prior form.

Wage inflation will remain very low for the foreseeable future. Bill's view was that inflation therefore unlikely to be an outcome despite the inflationary spending going on by Government. Time will tell!