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Chief economist update: Australia's confidence contagion

Australia may not be "at the front of the queue for a safe and effective vaccine" (as Morrison declared back in November 2020) but it's certainly leading much of the world in containing the virus and strengthening economic recovery.

This was the final sentence I scribbled on this space yesterday.

I should have stuck with my original thought for the headline 'ScoMo removes vaccine roll-out target but no worries?' to better underline the thesis that the announcement didn't cause a stir among Australians. And it shouldn't, because the coronavirus had been virtually vapourised in this land girt by sea and the strengthening domestic economy.

The recovery will receive extra impetus if the latest confidence surveys are anything to go by.

The NAB business survey showed that it's no worries for businesses (despite the government withdrawing its JobKeeker programme at the end of March - the survey was conducted from 19-31 March).

Business conditions in Australia jumped from a reading of +17 in February to +25 in March. This is the highest reading on record boosted by equally record high scores in its sub-components - trading up 12 points to +35 in March); profitability (up 8 points to +26); employment (up 7 points to +16). "The strength in conditions is evident across all states and industries," according to NAB.

Business confidence slipped by 3 points to a reading of +15 in March from the previous month but remains at elevated levels and way above its long-run average of +6.

The jump in forward orders to an all-time high of +17 in March from 10 in February signals continued strength in conditions and confidence going forward.

No worries too for the Australian consumer.

The Westpac-Melbourne Institute index of consumer confidence rose by 6.2% to a reading of 118.8 in March - the highest level since August 2010 "when Australia's post-GFC rebound and mining boom were in full swing" (Westpac).

The survey was conducted from 5-10 April which means that respondents would have been aware of the delays from the vaccine roll-out and after the JobKeeper scheme has ended.

Confident consumers are spending consumers ... especially (as shown in the survey) when they're expecting improvement in their family finances over the next 12 months and their outlook on economic conditions over the next one and five years are brighter.

Australia's virtuous cycle continues to roll - roiled vaccine roll-out or not.

Confident consumers beget confident businesses - household spending rises, lifting sales and profits and ultimately investment in buildings and structures, machinery and equipment and staffing, increasing employment, raising consumer confidence...

The healthier economy would eventually be transmitted into the improvement of the government's fiscal budget.

Read our full COVID-19 news coverage and analysis here.

Read more: AustraliaNABAustraliansJobKeekerJobKeeperMorrisonWestpac-Melbourne Institute