ASX drops 1pc; Morgan Stanley sees China bull market building – The Australian Financial Review

Economists have lowered their expectations for the economy following the re-imposition of lockdown measures in Australia’s second largest city.
Westpac’s chief economist Bill Evans revised cut his estimate of economic activity this year by 20 basis points.
Westpacs Bill Evans is now expecting the economy to expand by 1.1 per cent in the September, down from 1.5 per cent. James Brickwood
“The shutdown in Melbourne has altered our growth profile for the Australian economy and we have slightly lowered our annual forecast for 2020 from a contraction of 4.0 per cent to 4.2 per cent,” Mr Evans said.
The economist noted that the area affected by the broad stay-at-home restrictions announced on Tuesday covers about 20 per cent of the economy by population, adding that the consequences are not expected be confined to Melbourne.
“For the purposes of our forecasts we expect that other parts of the Australian economy will be disrupted, particularly around the NSW border; regional Victoria; and interstate travelwhich adds a further 5 per cent of the economy to be affected.”
Goldman Sachs noted Melbourne’s economy had a level of resilience due to the amount of economic activity tied to occupations less disrupted by the lockdowns.
“The Melbourne economy is heavily skewed towards sectors that are less likely to be impacted by lockdowns (financial & professional services and manufacturing/construction), although some sectors such as hospitality and retail are likely to be severely impacted,” Goldman Sachs analysts explained.
“Taking these factors into account we estimate the hit to Victorias gross value add (GVA) to be about 6.5 per cent over Q3, which translates to a about 1.5 per cent hit to national GVA.”
Morgan Stanley strategist and managing director Chris Nicol has continued to highlight the ongoing risk posed by state of the outbreak to markets. He and his team see the situation in Victoria as a litmus test for authorities.
“[Tuesday’s] developments remind us that recovery milestones are not linear and setbacks are likely,” Morgan Stanley’s strategists said.
“This is a true test to the tracing and response ability that underpinned initial confidence to reopen the economysuccess in again flattening infection curves is critical to continued social easing and recovery momentum from here.
“From a Macro perspective, the consumer response will be important to watch (and may be different to April) and we expect this enhances the case for sustained fiscal support beyond September.”

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