RBA upgrades forecasts for the economic outlook

Friday 7th May 2021

RBA upgrades forecasts for the economic outlook

Friday 7th May 2021
Written by Chris Lioutas


  • Equity markets were mixed this week largely struggling for direction with the backdrop of a slew of economic news.
  • US company profits are now seen rising 46% in the 1st quarter with more than half of the 500 largest listed companies having reported so far. This compares with forecasts at the start of April of 24% profit growth.
  • In local stock news, ANZ, NAB, and Westpac all reported a strong rise in cash profits in their 1st half results, supported by a quicker and strong economic recovery which saw impairment charges fall away and the size of their mortgage books increase considerably.
  • Employment company Seek has raised its profit forecast as small to medium sized businesses across Australian & NZ hire more workers than expected. The company also promised a special dividend from the sale of a stake in a Chinese business.
  • The copper price rose above US$10,000 a metric tonne for the first time since 2011, nearing an all-time high as miners struggle to keep up with the global economic rebound.


  • The Reserve Bank of Australia left rates on hold at 0.1% this month with consistent messaging that their policy support will remain in place for some time. The Bank upgraded its forecast for the economy from 3.5% to 4.75%, downwardly revised their forecast of unemployment over the next 2 years, and upwardly revised their forecast for inflation over the same period. Governor Lowe also mentioned that the next decision on their other policy measures will occur at the July meeting.
  • Credit to the Australian private sector rose by 0.4% in March, the strongest pace of monthly growth in nearly a year, supported by growth across all major sectors.  Credit for housing was up 0.5%, with owner-occupied credit rising faster than investor credit. Person credit grew for the first time since January 2018 whilst business credit was up 0.3% in the month.
  • Australian dwelling prices rose by 1.8% in April with Sydney and Darwin leading the charge. Over the year, prices are up 6.4%, but results were wide ranging with 2.2% in Melbourne to 15.3% in Darwin. Since the low in September 2020, prices in Sydney are up more than 10%. Detached house prices are growing faster than units.
  • New lending for housing excluding refinancing rose by 5.5% in March, with lending to investors rocketing by 12.7% in the month. Lending to owner-occupiers rose by 3.3%. The largest lift came from NSW, QLD, and VIC.
  • More than 90,000 people have come off government support since the JobKeeper scheme ended in March of this year, supporting a quicker recovery in the unemployment rate which has also been mathematically helped by the lack of immigration. Deloitte Access Economics is predicting that next week’s Budget will show a $100 billion boost to the bottom line, no doubt supported by sky high iron ore prices.
  • Australia’s trade surplus fell in March, coming in below expectations, as exports fell by 1.7% and imports rose by a strong 4.3%. The smaller surplus will negatively impact economic growth. Exports of cereal grains and coal were hardest hit, whilst meat, wool, and iron ore exports held up well. Imports rose across the board with big gains in electrical goods and clothing & footwear.
  • A key US employment report showed private payrolls increased in April as companies rushed to boost production given the surge in demand, which was well supported by government aid and a combination of rising vaccinations and herd immunity.
  • An advance estimate of US economic growth has the economy growing at a 6.4% annualised rate in the 1st quarter of 2021, in contrast to 4.3% in the 4th quarter of 2020. The strong uplift appears to have broad support with increases in personal consumption, non-residential fixed investment, government spending, residential fixed investment, whilst inventory investment and exports fell.
  • Key US manufacturing data fell in April from March, coming in well below market forecasts, likely caused by shortages of inputs which led to constrained production. The weaker data was seen in production, new orders, and employment, whilst inventories also contracted.
  • Data showed that the Eurozone economy dipped into a second technical recession after a small than expected contraction in the 1st quarter. But a recovery is expected in the quarters ahead as restrictions are lifted and vaccination distribution ramps up. Data was mixed across the zone with Germany contracting more than expected whilst the French economy grew more than expected.
  • China’s factory activity expanded at a slower pace and missed forecasts in April as supply bottlenecks and rising costs weighed on production and overseas demand lost momentum.


  • Chinese regulators imposed restrictions on a list of technology companies in an antitrust (competition) crackdown. This continues the government’s campaign to rein in its internet giants as they grow increasingly concerned over their influence and the vast amount of data they’re collecting.
  • Virus cases and deaths continued to rise in India and Brazil with particular concerns regarding India’s health system being overwhelmed. The Australian government faltered in their response announcing that it would be illegal for Australians stranded in India to return to home. The European Union reached agreement for another 1.8 billion Covid vaccine doses through 2023 from Pfizer and outlined plans to loosen restrictions on tourism. New York is apparently set to fully reopen by 1 July as vaccination roll out continues, whilst closer to home the Australian government finally realised that if you don’t let GPs administer the vaccine it will be many years before those that want the vaccine get it.
  • The Chinese government announced that they were cutting off all future economic dialogue with Australia after officials became unhappy with some rhetoric within our federal government. Political gamesmanship is the key here. China’s solutions to the current issues are we either apologise immediately or they play the long game (pain) until we capitulate. Neither option is good for us, so we instead ramp up the rhetoric hoping China retaliates so we can then exert pressure on our allies for assistance. The Philippine foreign minister went a step further in an expletive-laced Twitter rant regarding Chinese vessels in disputed waters, telling the Chinese to “get the FXXK out”.


Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972

Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972

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