Australia’s leading home loan lender, the Commonwealth Bank, believes the country’s economy could either recover or collapse in 2021 and plans to do both.
The company’s financial results for the last six months of 2020, released on Wednesday, included a forecast for this year – with one scenario predicting property values to rise 8 percent, shares 12 percent and unemployment to fall.
That’s their main scenario, but they’ve also uncovered three other forecasts that they believe could materialize — an “upward” scenario, a “downward” scenario and a “severe downside” scenario — with the latter under wraps is held not to do so to scare the market.
House values will fall 15 percent and unemployment will rise to 10.4 percent, according to Commonwealth Bank downward forecast (stock image)
In comparison: The Commonwealth Bank’s two possible economic scenarios for Australia in 2021
The bank’s main, or “central” scenario is for unemployment to fall to 6.5 percent this year — welcome news for those who rely on payments from JobKeeper and JobSeeker, which are due to phase out in the next few months .
That forecast also suggests the average Australian’s disposable income will increase by 2.4 per cent – giving consumers more money to spend in retail and hospitality.
However, when you contrast that with the company’s “downside scenario,” it paints a much more worrying picture.
According to this forecast, property values will fall by 15 percent, unemployment will rise to 10.4 percent and Australians will have 3.8 percent less cash in their pockets.
It’s also worth noting that this isn’t even their secret “severe downside scenario” suggesting the delayed economic impact of lockdowns and travel bans could be catastrophic.
Melbourne’s Level 4 second wave lockdown is estimated to have cost the Victorian economy up to $12 billion, according to Shane Oliver, chief economist at AMP Capital.
And we’re not over the hill yet, with widespread vaccination not expected until mid-2021, another large-scale lockdown wouldn’t be ruled out.
The highly contagious British strain of coronavirus has been spotted off Australian shores – and authorities are scrambling to contain the latest outbreak at Melbourne’s Holiday Inn Airport.
Central scenario forecasts property values to rise 8 percent, stocks to rise 12 percent and unemployment to fall (stock image)
Despite the bank’s differing forecasts for the next 12 months, its financial bottom line for the last six months of 2020 showed that at least the banking business was booming despite the coronavirus pandemic.
The Commonwealth Bank had revenue of US$12 billion, spent US$6 billion in operating expenses, paid US$1.6 billion in taxes and had profit of US$5 billion in the second half of 2020 -Dollar.
Australia’s property market is currently performing strongly and appears to be pulling our $2 trillion economy out of its first recession in three decades.
Prices hit record highs, home loans soar and building permits hit 19-year highs.
Among the main beneficiaries of this boom are Australia’s largest banks, whose shares have risen on expectations of a return to earnings and dividends in 2021.
Banks fell out of favor last year when the COVID-19 pandemic forced entire sectors of the economy to shut down, prompting the central bank to cut cash rates three times to a record low of 0.1%.
A solid recovery in the housing market since then, fewer-than-expected loan deferrals and strong loan growth have pushed consensus earnings expectations for banks up as much as 31% over the past two months, Mr Oliver said.
An environment of extremely low interest rates generally has a negative impact on bank earnings.
In the case of Australia, however, looser financing conditions and strong government stimulus have boosted credit volumes and more than offset the impact of tighter net interest margins.
It has been estimated that Melbourne’s Level 4 second wave lockdown would cost the Victorian economy up to $12 billion