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.
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