Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

Read Statement

Australian services recovery proxy points to V recovery

The key driver of Australia’s 7.0% QoQ and 6.3% YoY decline in 2Q20 real GDP was services consumption, which fell 17.6% QoQ and 19.3% YoY. This collapse was driven by transport, recreational and cultural, hotels and restaurants and health services. Australia only produces services data quarterly, so in this note we create a services recovery proxy to gauge Australia’s 2H20 rebound.

From timely official and industry data, Australia is seeing a V-shaped recovery in retail sales, housing activity and capital goods investment, providing a strong platform for a 2H20 recovery. In the services sector we find the following:

  • Transport services: fell 88% YoY in 2Q20 to a record 60-year low. Toll roads have partly rebounded, but airlines and airports continue to languish on Victoria’s lockdown and border restrictions.
  • Recreation and cultural services: fell 54% YoY in 2Q20. Gambling revenues have strongly rebounded, though held back by restrictions.
  • Hotels and restaurants: fell 60% YoY in 2Q20. Restaurant chains have performed strongly, whilst hotels continue to languish.
  • Health services: fell 26% YoY in 2Q20. Diagnostic services have seen a strong recovery, whilst hospitals have been slower to recover.

Our services proxy – eight stocks in these four services sectors – almost halved in February-March, consistent with the collapse in 2Q gross domestic product (GDP). It regained two-thirds of its losses by early June, pointing to a powerful 3Q20 GDP rebound, and is now 10% below early 2020 levels, consistent with a further rebound in 4Q20 GDP.

Download the Full Report for Investment Implications here:

 

By submitting your email, you understand that E. L. & C. Baillieu may use your email to invite you to investment briefings or investment webinars or for other marketing purposes. You can unsubscribe from this list at any time by clicking unsubscribe on any E. L. & C. Baillieu email you receive.

Back To Top