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EXPERT OBSERVER
Events have been moving quickly in the Australian economy.
With the announcement of the Australian Government’s latest JobKeeper Payment (JKP) policy and further tightening of social distancing guidelines we have reviewed our employment, GDP, and Budget deficit forecasts.
Key forecasts had been: a peak in the unemployment rate of 11.1% in the June quarter; a GDP contraction of 3.5% in the June quarter; and the likely issuance of an additional $250bn in Australian government bonds over 2019/20 and 2020/21.
In reviewing those forecasts we have maintained the approach of assessing employment and output across industry sectors to arrive at a more granular estimate of the impact of the various government policies on the Australian economy.
We also maintain our core view that while the intensity of the policies to address the virus will peak near the end of the June quarter, most policies will be maintained through the September quarter and the recovery will be delayed until the December quarter. Conditions in the global economy will remain very weak until well into the December quarter.
With the shutdowns and social distancing policies being tightened we now expect a much more severe impact on the output of most industries.
As expected, the most seriously affected industries are likely to be: retail; accommodation; restaurants; transport; recreation; and real estate. However we also expect negative impacts for other industries including manufacturing; construction; and distribution. Other industries such as health, government, and telecommunications will see a lift in employment and output.
We expect GDP will now contract by 8.5% in the June quarter; to be followed by a 0.6% contraction in the September quarter; and a 5.2% lift in the December quarter.
Overall, the economy is expected to contract by 5% through the 2020 year.
BILL EVANS is the <a href="https://westpaciq.westpac.com.au/Article/42804/16785/" target="_blank">Chief Economist at Westpac</a>
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JobKeepers payment to reduce peak unemployment rate from 17% to 9%: Westpac's Bill Evans

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EXPERT OBSERVER
The Governor of the Reserve Bank has announced a number of important initiatives to support the Australian economy and the financial system. Most of these initiatives come as no surprise. Westpac released a note on March 16 which set out its expectation for these initiatives.
<ol>
<li>The cash rate target has been reduced from 0.5% to 0.25%. Furthermore, it will not be increased until the Board believes that progress has been made towards full employment and inflation is sustainably within the 2–3% target band. Since exchange settlement balances are remunerated at the cash rate minus 0.25%, the Reserve Bank has committed to increase the remuneration to 0.10% in recognition that exchange settlement balances are likely to increase significantly as a result of this policy package. 
</li>
<li>The RBA has now adopted Quantitative Easing. However, instead of nominating a volume of bond purchases, it has nominated a target yield for the three year Australian government bond rate of “around 0.25%”. This is a bold move given that, in admittedly light trading, the yield on these bonds had been around 0.6% up until the announcement. Since the announcement, the rate has fallen to around 0.4%, and further adjustments to market rates may occur. Of considerable interest has been the reaction of the bond market in longer term securities, where the rate has increased to a volatile 1.6%, indicating a very steep yield curve. This yield objective is expected to be achieved through purchases of government bonds and semi government bonds, with the purchases to occur across the yield curve. These will commence tomorrow. 
</li>
<li>Westpac is particularly pleased to see that the RBA is offering a term funding facility for the banking system. This facility will be provided for three years to authorised deposit taking institutions (ADI’s) at a fixed rate of 0.25%. ADIs will be able to obtain funding for up to 3% of existing outstanding credit. The objective is to support small and medium sized business. ADIs will still be required to take on the credit risk associated with these facilities, but may consider switching more expensive facilities for existing borrowers into these facilities, providing a cash flow boost to small and medium sized businesses. 
</li>
<li>These initiatives will not affect the Bank’s ongoing provision of liquidity to Australian financial markets through repo operations which have recently been extended to six month maturities or longer.</li>
</ol>
In addition to these initiatives announced by the RBA, the Treasurer’s Office has announced that the Australian Office of Financial Management (AOFM) will be provided with an investment capacity of $15 billion to invest in wholesale funding markets used by small ADIs and non-ADI lenders. As signalled in Westpac’s note of March 16,  this initiative parallels a similar initiative by the AOFM  during the Global Financial Crisis. It will be of particular support to issuers of Mortgage Backed Securities.
Comment
The Bank is adopting a bold policy response to target the three year bond rate at well below current market pricing. This means that they are using their balance sheet to make a significant difference to the risk-free yield curve and therefore providing support to the financial system.
The market will no doubt take full advantage of this policy decision, and it will be interesting to see the volume of required purchases to achieve the interest rate target.
Westpac has been promoting the use of term funding facilities since around July last year, and we are particularly supportive of this initiative.
This article was <a href="https://westpaciq.westpac.com.au/Article/42641/14186/" target="_blank">first published on WestpacIQ</a>
<div>
BILL EVANS is the <a href="https://www.westpac.com.au/news/authors/bill-evans/" target="_blank">chief economist at Westpac</a>.
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RBA and Commonwealth Treasury announce initiatives to support financial system: Bill Evans

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EXPERT OBSERVER
On Monday, March 9, we forecast that the Australian economy would experience a recession in 2020 with the economy contracting by 0.6% in the first half although we expected growth in the second half of 2.2% as the economy recovered from the disruption associated with COVID-19.
Our central assumption was that the COVID-19 threat would peak in the June quarter and by quarter’s end confidence and activity would begin to recover.
We described 2020 as a severe disruption or technical recession to differentiate from the last two recessions in Australia when the unemployment rate spiralled from 6% to 11%.
Our figuring last week set the forecast peak in the unemployment rate at around 5.8%- 6%, up from the current level of 5.3%.
The relatively modest increase in the unemployment rate was particularly reflective of the expectation that the disruption would be relatively short when compared to earlier recessions and viewed as such by business that there would be a degree of labour hoarding.
Later in the week we analysed the Government’s $17.6 billion Stimulus Package and concluded that the Package would not be sufficiently stimulative to avert a recession in 2020.
Our key assumptions around the Package focussed on the likely impact on spending from the $4.76 billion payments to pensioners and social security recipients and the instant asset write off provisions.
We assessed that pensioners would save around 75% of payments and social security recipients would save around 60%.
Pensioners are likely to be cautious given the collapse in bank deposit rates and health concerns. In that regard the 13.8% collapse in confidence amongst the over 65 year olds in the latest Westpac MI Consumer Sentiment Survey signals caution. Social security recipients will be unnerved by the COVID -19 threats and discouraged by the “one off” nature of the income boost.
We differed with the Government’s figuring around the lift in business investment associated with the “instant asset write off” package assuming around $2 billion compared to the Government’s estimate of $5-6 billion. With business confidence fragile going into the COVID-19 shock and weakening further we expect businesses will be cautious around boosting spending.
Nevertheless, we noted that the Package was likely to boost activity in the June quarter by 0.4% of GDP largely offsetting the estimated contraction. However we noted that conditions had deteriorated over the week and the “pre-package” contraction was now likely to be larger than estimated early last week.
In that regard our revised estimates of GDP growth in the March and June quarters, after adjusting for the Stimulus Package, are minus 0.7% and minus 0.3% respectively - a total contraction of 1% of GDP.
Recall that our estimate early last week was a total contraction of 0.6%, before adjusting for the Stimulus Package.
So what has changed?
Most notably we have seen mandatory quarantine requirements for international travellers; restrictions on large public gatherings; a brutal sell off in the global equity markets; and reports of limited liquidity in government and corporate debt markets.
Not surprisingly, as these events have moved quickly, we have made some major changes to our estimates of the impact of COVID-19 in both the March quarter and the June quarter.
We have increased our estimate of the shock to the most exposed component of consumer spending (hotels; restaurants and cafes; recreational services; and air travel) to minus 40% over the two quarters from minus 25%.
We have increased the expected shock to consumer durables to minus 7% and revised up the negative impact on home renovations and additions.
We expect outbound and inbound tourism to contract by 80% over the two quarters.
Overall we now see consumer spending contracting by 0.1% (March quarter) and 2.8% (June quarter) before recovering by 1.9% in the September quarter and 1.0% in the December quarter.
We have also made adjustments to inventories; government spending (lifting health expenditure further).
Growth through 2020 is now estimated at 1.5% with minus 1% in the first half and 2.5% in the second half.
The unemployment rate is now forecast to reach 7% by October 2020 (up from the previous estimate of 5.8%-6.0%) due to the larger negative shocks to the labour intensive sectors such as recreation; tourism; education; renovations and additions; and dwelling construction. This lift in the unemployment rate is despite reducing the participation rate from 66.1% to 65.4% as a discouraged worker effect – that is, as workers respond to a deteriorating labour market the participation rate is likely to decline.
Please note that these forecasts are not based on Australia following a European style full lock down. Not surprisingly, the forecasts are subject to downward revision in the event of such an occurrence.
This article was <a href="https://www.propertyobserver.com.au/https://westpaciq.westpac.com.au/Article/42362" target="_blank">first published on WestpacIQ</a>
<div>
BILL EVANS is the <a href="https://www.westpac.com.au/news/authors/bill-evans/" target="_blank">chief economist at Westpac</a>.
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Westpac revise 2020 forecasts, deeper recession and 7% unemployment: Bill Evans

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EXPERT OBSERVER
Today, the Reserve Bank released a Statement which was aimed at addressing liquidity issues in the Australian financial market.
The liquidity policies were aimed at both the government bond market and the bank funding markets.
Earlier in the day, we saw aggressive policy changes from both the US FOMC and the Reserve Bank of New Zealand.
The RBA Governor’s Statement noted that the Reserve Bank “stands ready to purchase Australian government bonds in the secondary market”.
The Statement indicated that the action was aimed at supporting the smooth functioning of the bond market.
At a recent Conference, on March 11, RBA Deputy Governor Debelle noted that “at the moment we don’t see material disruptions in financial markets. If that were to change we obviously have the capacity to act in the market like we did back in 2008 in terms of ensuring sufficient liquidity to the market. We don’t see the need for that now, but obviously if circumstances change, that might also need to change”.
Clearly from the RBA’s perspective the circumstances have changed. So this action in the bond market is targeted at boosting liquidity in a market that is seen as a “key pricing benchmark for the Australian financial system”.
Other liquidity based policies which were announced include one month; three month; and six month or longer repo operations to support liquidity in bank funding markets.
This action in the bond market is not the Quantitative Easing policy which we have been anticipating will be adopted when the overnight cash rate reaches 0.25% (defined by Governor Lowe as the zero lower bound at a speech on November 26).
In explaining its proposed approach to Quantitative Easing Deputy Governor Debelle pointed out at the same Conference, “So we would talk about the likely future path of interest rates – what is generally known as forward guidance – and to validate that we would be operating in the bond market as necessary to keep government bond rates, or the risk free curve, consistent with our outlook for interest rates".
It is interesting that the Bank’s first foray into the bond market is based on liquidity but we do not expect that the Quantitative Easing approach has been shelved.
The Governor's statement today also indicated that: "further policy measures to support the Australian economy" will be announced on Thursday March 19.
Those policy measures are expected to include a lowering of the overnight cash rate from 0.50% to 0.25%.
Quantitative Easing, along the lines described by the Deputy Governor, is also expected to be announced. This would involve the RBA targeting a particular outlook for the risk free curve.
The Governor’s Statement also noted that the RBA and the AOFM are in close liaison. Recall that during the Global Financial Crisis the AOFM purchased a range of mortgage backed securities. A repeat of that successful exercise is also likely to be announced.
Last year Westpac raised the issue of the RBA adopting a similar policy to the Bank of England to support small businesses and households while supporting banks’ funding at a time of excessively low interest rates.
Under the arrangement the RBA would lend long term funds to the commercial banks at a rate close to the overnight cash rate with the funds being tied to loans to business and households.
We understand that in this current crisis a key priority is about ensuring that good companies stay afloat until the crisis has passed and in turn that companies are able to retain their employees.
The Government’s Fiscal Stimulus Package addressed these issues but we think that the monetary authorities, in conjunction with our unquestionably strong banking system, can also play a role.
BILL EVANS is the <a href="https://westpaciq.westpac.com.au/Article/42581/14186/" target="_blank">chief economist for Westpac</a>.
This article was first published on <a href="https://westpaciq.westpac.com.au/Article/42581/14186/" target="_blank">Westpac IQ</a>.
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RBA to cut cash rate to record low 0.25% and announce QE: Westpac's Bill Evans

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EXPERT OBSERVER
Westpac has revised its growth forecasts for the Australian economy in 2020 to take into account the expected impact from the Coronavirus. The numbers are based on a "no fiscal stimulus package" basis. The Government is set to announce its policy response later in the week and it will be necessary to adjust the numbers according to our assessment of the impact of the policies.
We expect the Australian economy will grow by 1.6% (in the year to the December quarter 2020) although growth momentum will be in two halves with the first half showing a contraction of 0.6% and the second half growing by 2.2%.
On a quarterly basis we expect the economy will contract in both the first and second quarters by 0.3% and 0.3% respectively to be followed by a rebound of 1.4% and 0.8% respectively in the third and fourth quarters.
That growth profile constitutes a technical recession but given the expected recovery in the second half of the year it is much more realistic to characterise the situation as a "major disruption" to growth rather than the style of recession that Australia has experienced in the past. Indeed, recall that in Australia’s last two recessions the unemployment rate lifted from 6% to around 11%.
We expect the unemployment rate to hold below 6% through this period.
Furthermore, there is much greater uncertainty around these forecasts due to the unpredictable course of the outbreak.
In discussing this profile it is probably best to consider the growth dynamics through each of the quarters in 2020.
The first point to note is that the economy will be dealing with the impact of the virus when it is in a relatively fragile state with growth in 2019 at 2.2% compared to potential of 2.75%.
In particular, consumer spending has been insipid with the annualised pace running at only 1% in the second half of 2020.This means that consumer spending is likely to be less resilient to shocks than if momentum had been robust.
Whereas exports (tourism; foreign students; agriculture; resources) and inventories (disrupted supply chains) will explain the major shocks in the March quarter given their exposure to the Chinese economy, the June quarter contraction will be dominated by Australia’s and the rest of the world’s exposure to the virus and the lagged effect of China’s recession in the March quarter. In particular the impact on the rest of the world has already been affecting financial markets which is likely to puncture confidence more widely.
BILL EVANS is <a href="https://www.westpac.com.au/news/authors/bill-evans/" target="_blank">chief economist of Westpac</a>. 
This article was <a href="https://westpaciq.westpac.com.au/Article/42476/14186/" target="_blank">first published on WestpacIQ</a>.
 
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Westpac cuts growth forecasts for 2020

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EXPERT OBSERVER
As Westpac predicted yesterday, the Reserve Bank Board decided to lower the cash rate by 25 basis points to 0.50 per cent at its March meeting.
In discussing the reasons behind the decision, the Governor highlighted three themes that are all linked to the coronavirus.
Firstly, “In most economies, including the United States, there is an expectation of further monetary stimulus over coming months”.
Secondly, “the Australian Government has also indicated that it will assist areas of the economy most affected by the coronavirus”.
And finally “The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected”.
In fact, around two thirds of the statement  are devoted to the theme of the coronavirus, while the “usual themes” around unemployment; wages; and the housing market attract only limited attention with no real change from previous statements.
The final sentences of the statement are important: “It (the Board) will continue to monitor developments closely and to assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy”.
With the virus impacting an economy that was already weak it was absolutely necessary to provide more support although the Reserve Bank does not recognise that risk in the Governor’s Statement.
Conclusion 
It has been Westpac’s forecast that the RBA will act again in April for much the same reasons that we have seen today – helping to assist the Australian economy to deal with the shocks associated with the virus; falling into line with other central banks’ stimulatory policies, particularly to ensure that the Australian dollar remains competitive and working in conjunction with the Australian Government to deal with the issues.
It seems that the coronavirus has brought the Government and the Reserve Bank together to address the risks with complementary policies. That “partnership” is unlikely to end with this single move by the RBA.
This article was <a href="https://www.propertyobserver.com.au/https://westpaciq.westpac.com.au/Article/42362" target="_blank">first published on WestpacIQ</a>
<div>
BILL EVANS is the <a href="https://www.westpac.com.au/news/authors/bill-evans/" target="_blank">chief economist at Westpac</a>.
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RBA will cut again in April for the same reason as March cut: Westpac's Bill Evans

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EXPERT OBSERVER
After the developments of the weekend we now expect the RBA to cut the cash rate by 0.25% at its meeting on March 3 and the FOMC to cut by 0.50% at its meeting on March 17/18.
On Friday we published our outlook for RBA and FOMC policy.
We confirmed our forecast for an April cut from the RBA and moved forward our first cut from the FOMC from June to March.
Over the weekend there have been major developments:
<ul>
<li>Following a further 900 point sell off in the US share market on Friday FED Chair Powell made a highly unusual unscheduled intervention, near the close of trading, noting that: “We will use our tools and act as appropriate to support the economy”.</li>
<li>This statement is likely to be seen as a “call to action” for other central banks around the world.</li>
<li>The Chinese PMI’s were released for February showing a plunge to 35.7 (from 50 in January) in the manufacturing PMI (even lower than the previous record low of 38.8 in November 2008 – during the GFC); the non-manufacturing PMI fell from 54.1 to 29.6. Both these levels were significantly below formal market expectations.</li>
<li>Reports of meetings over the weekend of Government and Financial Regulators to prepare Australia’s economic defences.</li>
<li>Market pricing for a 25 basis point cut from the RBA on March 2 has increased from 18% (Australia 5 pm Friday) to 120%.</li>
<li>Market pricing for a 50 basis point cut from the FOMC in March has moved from 50% (Australia 5pm Friday) to 75%.</li>
<li>There is reasonable speculation that the confidence hit to the share market and the overall economy we have seen over the last week may impact confidence in the housing market – particularly at the top end of the market.</li>
<li>Developments outside China around the Coronavirus continue to alarm. (Last five days we have seen cases reported in 20 new countries, with 20 countries now reporting local transmission).</li>
</ul>
All these developments in this very volatile time mean that we have reviewed our forecasts for the RBA and the FOMC.
We now expect the RBA to cut the cash rate by 0.25%  to 0.5% at tomorrow’s meeting.
That is likely to be followed up by a second cut to 0.25% at the April board meeting.
The Governor has previously indicated that he would consider quantitative easing once the cash rate reached 0.25%.
QE has always been part of Westpac’s forecasts but we envisaged the policy starting in the fourth quarter of 2020. These developments are likely to bring that timetable forward to mid year.
We have long argued that the FOMC would cut by 75 basis points over 2020. That reflected our view about a slowing economy coupled with consistent under shoot on inflation.
We now see that 75 basis points being made up of 50 in March and 25 in April.
We expect that given the FOMC's focus on market liquidity these rate cuts will be supplemented by specific liquidity policies. 
A key driver of the more aggressive stance from the RBA will be to ensure the AUD remains competitive. Since the advent of the Corona Virus the AUD has fallen from USD 0.69 to USD 0.65. With the RBA now likely to be more aggressive and the recovery in China likely to be delayed (and coming from an even weaker position, based on the recent PMI’s) we have also lowered our near term (March) forecast for the AUD from USD0.65 to USD 0.63.
I am primarily responsible for the content of this research report and I certify that:
<ol class="d">
<li>to the best of my knowledge, I am not in receipt of inside information and the research does not contain inside information; and</li>
<li>no other part of the licensee has made any attempt to influence the research.</li>
</ol>
This article was <a href="https://www.propertyobserver.com.au/https://westpaciq.westpac.com.au/Article/42362" target="_blank">first published on WestpacIQ</a>
<div>
BILL EVANS is the <a href="https://www.westpac.com.au/news/authors/bill-evans/" target="_blank">chief economist at Westpac</a>.
 
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RBA to cut rates at March and April meetings: Westpac's Bill Evans

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EXPERT OBSERVER
As expected, the Reserve Bank Board decided to keep the cash rate unchanged at 0.75%.
It is noteworthy that the Board has also not adjusted its growth forecasts for 2020 and 2021 holding them at 2.75% and 3% respectively. The discussion around the two recent shocks to growth – bushfires and coronavirus – emphasises the likely temporary impact of both although the statement does appropriately point out that “it is too early to determine how long lasting the impact [of the coronavirus] will be”.
Further emphasising this tentative approach to coronavirus developments, the description around the world economy has changed: “global growth is expected to be a little stronger this year and next than it was last year.” That compares to the December statement which only referred to: “the outlook for the global economy remains reasonable” – a surprising modest lift in confidence around the world economy given the current recent market developments.
On the other hand the fall in the unemployment rate since the last Board meeting, from 5.3% to 5.1% has been taken on board and the new forecast for the unemployment rate in 2020 appears to be 5.1% down from 5.25% at the December Board meeting. For 2021 the expectation that the unemployment rate will fall slightly below 5% is maintained.
It is of some interest that the statement does not repeat the description “gentle turning point” although the arguments pointing to an improving growth outlook – the low level of interest rates; tax refunds; ongoing spending on infrastructure; a brighter outlook for resources – is now supplemented by a more confident outlook for the residential construction cycle where the statement points to an expected recovery later this year.
It is important that the sentiment in the December statement that “the Australian economy can sustain lower rates of unemployment and underemployment” has been repeated. This emphasises the desirability, from the Board’s perspective, of further falls in the unemployment rate.
The recent weakness in the Australian dollar is recognised with the AUD being described as “around its lowest level over recent times”. That compares with the previous description of “at the lower end of its range in recent times”. There may be some inconsistency in this observation given that if, as the growth forecasts imply, the economy bounces back from the short term shocks, a recovery in the AUD is almost certainly going to be an outcome.
In the final paragraph, the statement repeats the sentiment of the December statement emphasising: 1) the long and variable lags in the transmission of monetary policy; and 2) the Board is prepared to ease policy further if needed. The third point used in December, that “[the Board] continues to monitor developments, including in the labour market” has been modified to “The Board will continue to monitor developments carefully, including in the labour market”. Arguably this final difference can be interpreted as the Board being more uncertain about future developments and therefore wanting to emphasise its strong duty of care.
Conclusion
We have been surprised that the Board has retained its growth forecast for 2020 at 2.75% (around trend) given the weaker momentum which was apparent from the September quarter national accounts and developing questions around the global economy. It is also somewhat brave, given a range of leading indicators around the labour market, to assume that the recent surprise fall in the unemployment rate over the last two months, from 5.3% to 5.1%, will be sustained. Westpac’s forecast is for the unemployment rate to drift upwards over the first half of 2020.
The uncertainty around the coronavirus poses substantial risks to economic forecasts but certainly the impact of the virus over the course of the first quarter both globally and domestically has to be quite damaging. It seems unlikely that subsequent stimulus policies will be able to fully offset the short term damage done to confidence and activity implying a realistic downward revision to growth forecasts, both globally and domestically.
Westpac continues to expect that a combination of a more moderate growth outlook and an unexpected (by the RBA) deterioration in the labour market will require a further policy response. Our forecast is that the next rate cut will occur in April followed by a further cut in August.
BILL EVANS is the Chief Economist at Westpac
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RBA remain optimistic but cash rate cuts ahead

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EXPERT OBSERVER
As discussed in our last weekly Westpac now expects the Reserve Bank to delay its next cut in the cash rate to April with the final cut to 0.25% occurring in August. Prior to the release of the surprisingly strong December employment report we had expected the cuts to be timed for February and June.
The inflation report, which printed on January 29, confirmed that inflation remains 'stuck' well below the Board’s 2–3% target band with the trimmed mean (the key measure of underlying inflation used by the RBA) printing 0.43% for an annual rate of 1.6%. The annual rate of increase of the trimmed mean has been within a 1.5%–1.8% range for the past four years. The RBA’s latest forecasts envisage the annual rate of the trimmed mean holding at 1.8% in 2020 and 1.9% in 2021. When the Bank releases its revised forecasts on February 7 we expect it will reaffirm that inflation outlook.
These are not the forecasts of a central bank (with a 2–3% inflation target range) that expects it has come to the end of its easing cycle.
Such a decision would only be appropriate if the Bank assessed that further easing in policy would be ineffectual or counter productive.
However, in its December minutes, the Board made the case for the effectiveness of monetary policy.
"Members discussed the transmission to the economy of the interest rate reductions since the middle of the year. They noted in particular that the available evidence suggested that more stimulatory monetary policy had been working through the usual channels of lower bond yields, a depreciation of the exchange rate and lower interest rates on mortgages. There had also been an effect on housing prices, increased housing turnover in the established market and some early signs of a stabilisation in housing construction activity ...
... While members recognised the negative confidence effects for some parts of the community arising from lower interest rates, they judged that the impact of these effects was unlikely to outweigh the stimulus to the economy from lower interest rates".
It is also important not to confuse monetary and fiscal policy. There has been some speculation that fiscal policy is the only answer. We accept that a more stimulatory fiscal policy is necessary and have strongly advocated the bringing forward of the Stage 2 personal tax cuts in two tranches beginning in July 2020 and followed by the second tranche in July 2021.
Based on the most recent fiscal update – the Mid-Year Economic and Fiscal Outlook, released December 16 – that policy would risk pushing the 2020/21 and 2021/22 fiscal positions back into modest deficits. We believe that such a 'price' is worth paying if we are to provide a sizeable boost to household incomes and an associated lift in business expectations for stronger demand growth.
Now, of course, it is necessary to superimpose on this discussion the recent exogenous shocks of the bushfires and coronavirus.
Westpac has adjusted its GDP forecasts for the bushfire effect, lowering GDP growth in both the December and March quarters by 0.1%, reflecting the impact on tourism; agriculture; and regional retail of the bushfire crisis.
The other likely effect was always going to be the overriding impact on consumer confidence. The Westpac-MI Index of Consumer Sentiment fell by 1.8% in January to 93.4 – a fairly modest fall compared to the 5.8% fall during the Queensland floods of 2011. However the survey was taken during the first week of rain in January, and the starting point for the Index was much lower than in 2011 (a reading of 111 for Sentiment).
The –0.2% growth impact is seen to be on the conservative side with estimates ranging from –0.1% to –0.5%.
We have also pencilled in a lift in demand of 0.1% of GDP later in 2020 to reflect the rebuild that will follow.
The second risk to the growth outlook is the coronavirus outbreak.
This virus is likely to largely affect Australia through its impact on services exports. This sector has been an important source of growth for the Australian economy. In a year (to the September quarter 2019) where the Australian economy grew by 'only' 2.0%, net service exports contributed 0.4ppts.
Services exports are about $100bn a year. This includes $64bn, 3.2% of GDP, in travel and education – of which Chinese students and tourists represent 27% of those exports, or 0.85% of GDP.
Consequently the direct effect of a complete shutdown of Chinese tourism and student travel for a year would reduce GDP by almost 1ppt with significant additional multiplier effects. However such an outcome is extreme – well beyond the experience during the SARS outbreak of 2003 – and we can only await a clearer picture of developments over the next few months.
Issues of importance in estimating the impact on Australia’s services exports include: the resilience of the virus; the impact on student travel and the impact on tourism.
Westpac has not imputed this effect in its current growth forecasts given the high degree of uncertainty.
The Reserve Bank will also be pondering the impact of the bushfires and coronavirus on its growth forecasts.
We will receive an update on the Bank’s growth forecasts on February 7, while the Governor is giving a speech "The Year Ahead" on February 5.
We expect that the RBA will lower its 2020 growth forecast from 2.8% to 2.6% (rounded down to 2.5% in the main forecast table in the 'Economic Outlook' section). That compares with Westpac’s forecast of 2.1% (no coronavirus effect included) and will be justified by the weaker than expected momentum in 2019 (September quarter GDP was not available for the November forecast) plus some allowance for the bushfires/coronavirus.
However these latter effects will be considered transitory and the 'bold' forecast of 3.1% growth in 2021 will likely be retained.
Markets should not feel that a lowering of the near-term growth forecast to below trend growth should automatically require a rate cut. The assessment of monetary policy involving 'long and variable lags' and an above-trend growth forecast in 2021 is sufficient to justify a 'pause' until the impact of exogenous shocks becomes clear and the sustainability of the recent downtrend in the unemployment rate can be tested.
Such an approach is entirely consistent with Westpac’s expectation that the next rate cut will be in April following the December quarter national accounts and the next 'snapshot' of Australia’s growth momentum.
BILL EVANS is the Chief Economist at Westpac
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RBA to hold until April and cut 2020 economic growth forecast: Bill Evans

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EXPERT OBSERVER
Despite the lift, the Leading Index growth rate remains below zero, indicating momentum tracking well below trend.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/1/29/10_NEWS_BILL%20EVANS.jpg" alt="" width="536" height="359">
In fact the December print represents the thirteenth straight month where the Index growth rate has been negative.
This has been consistent with the persistent below trend growth we have seen for the Australian economy.
The latest update points to weak economic momentum continuing in the first half of 2020 and is consistent with Westpac’s view that growth will remain around a two per cent pace in the first half of 2020.
The Leading Index growth rate deteriorated over the second half of 2019, moving from –0.03 per cent in July to –0.32 per cent in December.
The main components driving the 0.28ppt shift have been a sell-off in commodity prices (–0.61ppts) and a more mixed performance on the Australian share market (–0.42ppts).
This has been partially offset by a stabilisation in the Westpac-MI Unemployment Expectations Index (+0.25ppts) a reduced drag from declining US industrial production (+0.21ppts), a modest lift in aggregate hours worked (+0.13ppts) and a widening yield spread as the RBA’s cuts in the cash rate have lowered short term rates (+0.10ppts).
The Reserve Bank Board next meets on February 4. Westpac expects that the Board will decide to hold the cash rate steady at its February meeting. That decision will be in response to the surprise fall in the unemployment rate from 5.3 per cent to 5.1 per cent since the last Board meeting in December.
However, we expect that decision to be a temporary pause in the rate cut cycle. The recent falls in the unemployment rate are expected to be unsustainable with this becoming apparent by the April meeting when we expect the next cut.
It is clear that the Board is confident that lower rates will boost the economy through a more competitive exchange rate; improved cash flows to households; and rising asset prices. However, the policy debate should not be around ‘either monetary policy or fiscal policy’.
The policies are not mutually exclusive and while Westpac expects a second rate cut in August we also support the use of fiscal policy to boost demand.
Our preference is to lift household incomes through bringing forward the stage two tax cuts phased over two years. A rise in expected demand should be more effective in boosting business investment than tax incentives.
BILL EVANS is the Chief Economist at Westpac
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Westpac leading index remains negative for over a year: Bill Evans 

The new <a href="https://www.apartments.com.au/new-apartments/yarraville-green-42-stephen-street-yarraville-vic-3013">Yarraville Green</a> development in Melbourne's inner west is showing that landscaping can be just as influential as architecture, with buyers responding strongly to the garden-first approach adopted from the outset by developer Excelon Projects and the project's design team.

Excelon appointed Six Degrees Architects and landscape architects SBLA to work collaboratively on the development, with a brief to create "a sustainable, design-led building with a focus on community."

That approach has resonated with buyers. According to Next Chapter Director Tom Hirini, who is leading the sales campaign, the landscaped communal garden has become one of the project's defining features, alongside its boutique scale and European-inspired cluster housing concept.

Local downsizers, right-sizers and established families already living in Yarraville and surrounding suburbs have accounted for the majority of purchasers.

[smartcode_project:default project_id=144913 project_image_fid=297740]

Yarraville Green will comprise 53 homes, including apartments and townhomes, arranged around the shared central garden to maximise connections to the landscaped open space. Parking has been moved underground, allowing the ground plane to be dedicated to greenery, pedestrian movement and communal spaces.

The landscape extends well beyond passive planting. Productive garden beds, a pergola, communal gathering spaces, garden sheds and a pet wash have all been integrated into the masterplan, creating spaces designed to encourage everyday interaction between residents.

[smartcode_project:default project_id=144913 project_image_fid=297741]

The interiors continue Excelon's focus on craftsmanship, incorporating bespoke elements by Melbourne artisans including leadlight detailing by Adadaz, hand-turned timber hardware by Auburn Woodturning and blown-glass lighting by Ruth Allen.

Sustainability has also been embedded throughout the project, with Yarraville Green targeting an average 7-star NatHERS energy rating through passive design principles, rooftop solar servicing common areas and rainwater harvesting for landscape irrigation.

[smartcode_project:default project_id=144913 project_image_fid=297735]

Construction continues to progress at Yarraville Green, with structural works well underway and framing works approaching completion under builder Balmain &amp; Co. The project remains on track for completion in mid-2027.

Apartments at Yarraville Green are currently priced from $625,000, while townhomes start from $1.4 million.

[smartcode_project_cta:default project_id=144913]

Joel Robinson

Garden-led design drives buyer demand at Yarraville Green

National diversified developer Fortis has officially launched Crest &amp; Walker, its latest Brisbane apartment development, with construction now underway on the 20-storey Newstead project.

Award-winning builder BINAH has commenced construction on the Bureau^Proberts-designed building, which will deliver a limited collection of 65 two and three-bedroom apartments on Kyabra Street.

[smartcode_project:default project_id=145922 project_image_fid=373556]

The project marks Fortis' fourth active residential development in Brisbane, following River House, which is nearing completion, alongside projects in New Farm and Hamilton as the national developer continues to expand its South East Queensland pipeline.

Fortis General Manager – Development Queensland Dan Boman said Crest &amp; Walker reflects the developer's long-term commitment to delivering design-led residential projects in Brisbane's established inner-city suburbs.

"We're proud to be strengthening our presence in Brisbane with Crest &amp; Walker, particularly in such a sought-after lifestyle destination as Newstead," Boman said.

"Every Fortis project is shaped by its context, and we approach each one with the respect and care it deserves.

"Our focus is always on creating places that feel connected to their neighbourhood and elevate the everyday experience for residents. Newstead continues to evolve as one of Brisbane's most sought-after urban communities, and Crest &amp; Walker reflects our ambition to contribute meaningfully to that story."

[smartcode_project:default project_id=145922 project_image_fid=373559]

Positioned between Gasworks Plaza and James Street, <a href="https://www.apartments.com.au/new-apartments/crest-walker-newstead-12-kyabra-street-newstead-qld-4006">Crest &amp; Walker</a> has been designed as a boutique residential address offering privacy and generous living spaces within one of Brisbane's most established lifestyle precincts.

The building features a contemporary brick podium softened by integrated landscaping, while the upper levels are characterised by restrained architecture and enduring materiality. Interiors have been designed to maximise natural light, acoustic performance and long-term liveability.

[smartcode_project:default project_id=145922 project_image_fid=373583]

Residences comprise spacious two and three-bedroom floorplans, with two-bedroom apartments priced from $1.55 million and three-bedroom, half-floor residences from $3.95 million.

Residents will have access to a wellness-focused rooftop featuring a swimming pool, sauna, steam room, landscaped dining spaces and outdoor lounge areas overlooking Newstead and the Brisbane CBD.

[smartcode_project:default project_id=145922 project_image_fid=373571]

Sales are being managed by Slaite Projects, with Fortis expecting strong demand from owner-occupiers seeking a high-quality, design-focused apartment in one of Brisbane's most tightly held inner-city suburbs.

Completion of Crest &amp; Walker is slated for late 2028.

[smartcode_project_cta:default project_id=145922]

Fortis expands Brisbane pipeline with launch of Crest & Walker in Newstead

The enormity of delivering a true skyscraper in Australia's new development market is often overlooked.

It has taken the best part of a decade since plans for Chevron One were first unveiled, but the 40-storey tower is now complete, with residents collecting their keys and moving into what has become one of the Gold Coast's most recognisable new landmarks.

Rising 127 metres above Chevron Island, Chevron One stands almost twice as high as any other building on the island. Its scale places it alongside the trio of towers at Jewel, arguably the last truly significant addition to the central Gold Coast skyline when they were completed around six years ago.

While there are several developments underway around a similar height to Chevron One, they are more concentrated within clusters of the highest towers in the city. The fact Chevron One sits within a developing precinct, looking back at the other high-rise developments in Surfers Paradise and Broadbeach, makes it a different proposition altogether. It will certainly become a reference point on the Gold Coast skyline.

[smartcode_project:default project_id=6515 project_image_fid=68833]

Developer Bensons Property Group is behind the 40-storey tower, which has just shy of 230 apartments, along with an exhaustive list of resident amenity spread across what is the largest development site ever assembled on Chevron Island.

The tower has been the talk of the town for years, says Ray White Projects Gold Coast agent Caitlin Rosenboom, who is selling the remaining apartments.

"People have been watching Chevron One go up for years," Rosenboom says, adding that many prospective buyers have been surprised by the scale of the views once they step inside.

"It's only when they walk through a completed apartment that they truly understand the position of the building," Rosenboom says.

"The views are jaw-dropping. Whether you're looking east over the ocean, across Surfers Paradise, along the river systems or out to the hinterland, every level offers something different but equally impressive."

[smartcode_project:default project_id=6515 project_image_fid=360215]

One of Chevron One's defining advantages is its location on the eastern side of Chevron Island on Stanhill Drive, a position which protects the views forever.

"There's only one row of houses between Chevron One and the water, and the height restrictions along the river means views from Chevron One can never be built out,"&nbsp;Rosenboom says.

While new apartment developments continue to emerge across the Gold Coast, Rosenboom says opportunities to secure a completed apartment with this level of outlook are becoming increasingly rare.

"The size of the site is something that would be incredibly difficult to replicate today," she says.

"That's allowed Chevron One to deliver the sort of amenity, open space and resident facilities that very few projects can offer. There are not many completed apartment buildings on the Gold Coast right now that can compete with the combination of scale, quality and amenity."

[smartcode_project:default project_id=6515 project_image_fid=68839]

There's around 2,000 sqm of amenity solely for the use of residents of Chevron One. Club One features a uniquely shaped swimming pool that mirrors the footprint of the building itself, set within a extensively landscaped gardens. There's also an indoor pool and spa, a fully equipped gym with a Pilates room, a yoga garden, a bookable private dining area and lounge that can host up to 30 people, and a 24-hour concierge service.

As for the buyers, Rosenboom is fielding enquiry from everywhere: Sydneysiders and Melburnians looking at the new and off-the-plan market following the changes in the Federal Budget, as well as those looking to relocate, through to South East Queenslanders seeking either a permanent home or a weekender bolthole.

"The Gold Coast lifestyle continues to resonate with people relocating from the southern states, and when they see the views and the quality of what's been delivered at Chevron One, it becomes very easy for them to understand the appeal," Rosenboom says.

A diverse mix of one, two and three-bedroom apartments remain available, with each offering "something a little different", be it the orientation and views, configuration, or level, to suit a wide variety of buyers.

The remaining apartments are ready to inspect in person, by appointment.

[smartcode_project_cta:default project_id=6515]

A decade in the making: Residents to move into Chevron One as construction wraps up

A general rule of thumb in new apartment developments is that the penthouses get the rooftop.

It's a formula that's become commonplace across Australia's apartment market. Residents might have access to a pool, gym or barbecue facilities on a dedicated lower level, but the most desirable outdoor spaces are typically reserved for the highest-priced homes at the top of the building.

<a href="https://www.apartments.com.au/developers/sherpa-property-group">Sherpa Property Group</a> has taken the opposite approach.

Rather than dedicating the rooftop to a handful of buyers, the Gold Coast developer has made it the centrepiece of its Flourish collection, creating expansive shared spaces from the best vantage point in the building.

The philosophy has reached its most ambitious expression at <a href="https://www.apartments.com.au/new-apartments/flourish-soleira-palm-beach-1150-1160-gold-coast-highway-palm-beach-qld-4221">Flourish Soleira</a> in Palm Beach, where two rooftop precincts connected by a skybridge will deliver one of the most extensive lifestyle offerings seen in a residential apartment project on the Gold Coast.

[smartcode_project:default project_id=150017 project_image_fid=374053]

"We're seeing a clear move toward developments that offer more than just an apartment," Sherpa Group founder Christie Leet said.

"People want spaces that support how they actually live, whether that's working from home, staying active, or spending time with family and friends.

"That's where amenity becomes critical. It's not just about what's included, but how those spaces are designed to be used every day."

[smartcode_project:default project_id=150017 project_image_fid=374052]

The breadth of amenity has already attracted buyers across multiple demographics. Younger first home buyers have been drawn to Soleira's one-bedroom apartments, a product rarely delivered in Palm Beach, while families have responded to practical inclusions such as the shallow children's pool adjoining the main lap pool and the extensive communal recreation areas.

Instead of a single rooftop, Soleira delivers two distinct lifestyle zones.

[smartcode_project:default project_id=150017 project_image_fid=372547]

The southern rooftop has been dedicated to wellness, featuring a gym, yoga and Pilates studio, work-from-home facilities, a wellness centre, spa, and hot and cold plunge pools.

The northern rooftop focuses on recreation and entertaining, incorporating a heated resort-style pool, private dining rooms, pizza ovens, barbecues, a golf simulator, children's recreation areas, and what is expected to be the Gold Coast's first rooftop basketball court, which will also double as a squash court.

[smartcode_project:default project_id=150017 project_image_fid=374054]

Beyond the rooftops, Soleira will introduce 1,500 sqm of curated retail beneath the towers, creating one of Palm Beach's first genuinely mixed-use lifestyle precincts where cafés, restaurants and convenience retail become part of residents' everyday lives.

Sherpa has also retained management rights across the development, allowing it to oversee the long-term operation of the building through a 24-hour concierge model. The developer is also exploring additional revenue streams within the precinct aimed at helping offset ongoing body corporate costs for residents.

[smartcode_project:default project_id=150017 project_image_fid=370962]

While Soleira is the largest project Sherpa has delivered, the rooftop-first philosophy has been evolving for several years.

It began with <a href="https://www.apartments.com.au/new-apartments/amargo-6-12-sixth-avenue-palm-beach-qld-4221">Flourish Amargo</a>, the first project released under the Flourish brand. Rather than competing at the ultra-luxury end of the market with oversized half-floor and full-floor residences, Sherpa focused on creating lifestyle-driven apartments supported by resort-style shared spaces.

Amargo introduced more than 800 sqm of rooftop amenity, combining wellness facilities, heated pools, entertaining areas, cabanas, pizza ovens and private dining spaces into what was designed as an extension of residents' homes rather than a facility used only occasionally.

[smartcode_project:default project_id=146527 project_image_fid=366550]

That approach continued with Flourish Oasis, where the same amenity-led philosophy was refined into a more boutique development. Strong demand from Sherpa's growing VIP database saw much of the project sold before it reached the broader market, reinforcing buyer appetite for apartment communities centred around shared lifestyle experiences.

Flourish Amargo is slated for completion mid-way-through next year, with Oasis to be delivered by late 2027. Flourish Soleira is expected to complete in 2030.

[smartcode_project_cta:default project_id=150017]

Sherpa takes amenity to the sky as Flourish Soleira captures booming Palm Beach demand

As apartment living continues to evolve across Sydney's growth corridors, the quality and distribution of shared spaces is increasingly shaping how residents experience home. Rather than functioning as add-ons, amenities are being embedded into the daily rhythm of a building, supporting everything from quiet retreat to social interaction, often within a single vertical community.

At <a href="https://www.apartments.com.au/new-apartments/aeris-melrose-park-nursery-street-melrose-park-nsw-2114">Aeris</a> in Melrose Park, this approach is resolved through a layered amenity offering that unfolds from ground level through to its upper podium. Developed by <a href="https://www.apartments.com.au/developers/sekisui-house-australia">Sekisui House Australia</a> in partnership with Hankyu Hanshin Properties, the project introduces 468 apartments across two towers and a mid-rise building, positioned at the highest point of the broader masterplan.

[smartcode_project:default project_id=426 project_image_fid=359199]

The amenity experience begins at street level, where two courtyards sit within a landscaped setting that connects residents to the wider network of parks and green spaces. These green spaces are not isolated pockets but part of a wider pedestrian network that links Aeris to the surrounding <a href="https://www.apartments.com.au/developments/melrose-park-nsw-2114">Melrose Park</a> precinct, including Central Park, future schools, and the Town Centre opening in July 2026. The result is a transition that moves from public to private without abrupt boundaries, allowing residents to pass through shaded, tree-lined environments before reaching the building itself.

Moving upward, the focus shifts to the level five podium, where the primary communal facilities are concentrated. This space brings together a 16-metre swimming pool, outdoor seating areas, and a communal BBQ zone arranged to take advantage of elevated outlooks. Seating is positioned beneath pergolas, creating pockets of shade that extend the usability of the space throughout the day. The pool edge aligns with views toward the wider district, reinforcing the sense of elevation that defines the project’s positioning.

In the adjacent building, this is complemented by quieter, more contemplative spaces, including an outdoor cinema set within the same level. Positioned to operate primarily in the evening, it introduces a different tempo to the shared environment, shifting from daytime activity to after-hours use without requiring separate zones.

[smartcode_project:default project_id=426 project_image_fid=360299]

The podium also accommodates an intimate private resident gym. Located on the lower levels, it gives residents convenient access to fitness facilities without leaving the building.

Above, the elevated podium sky deck extends the amenity offering, providing additional open-air spaces with elevated outlooks across the surrounding landscape. While more restrained in program, this upper level reinforces the project’s vertical progression, from ground-level greenery to elevated outlook, allowing residents to move between distinct spatial conditions within a single address.

This distribution of amenities reflects a deliberate response to how residents use space across the day. Sekisui House Australia Sales and Marketing Director Peter Kalaf points to the role these shared areas play in shaping buyer demand. Aeris has been conceived as more than a collection of apartments, with the podium pool, gym and outdoor cinema forming part of a broader lifestyle offering that extends the home beyond each individual residence.

[smartcode_project:default project_id=426 project_image_fid=360300]

What distinguishes Aeris is not the inclusion of these elements individually, but how they are arranged in relation to one another. Active, social, and passive spaces are layered vertically rather than separated, allowing residents to choose between them without leaving the building or moving far from their apartment. This proximity supports both routine use, such as a morning swim or evening workout, and more occasional gatherings, whether around the BBQ area or within the cinema setting.

The amenity design also sits within a broader framework of connectivity across Melrose Park. The Melrose Park Town Centre, anchored by Coles and Dan Murphys, features a mix of retail, dining, health and lifestyle offerings, bringing everyday convenience closer to residents. By the end of the year, more than five hectares of parks and open space, equivalent to around seven football fields of green space on residents' doorstep, will further enhance the precinct, allowing the internal facilities at Aeris to operate as an extension of the wider neighbourhood rather than a substitute for it.

Construction at Aeris continues to gather momentum, with ground floor slabs expected to be completed in late 2026 before the first sections of the buildings begin to rise above ground.

[smartcode_project_cta:default project_id=426]

Bill Evans

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