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Tim Hext: A glimpse of what could have been

The national accounts show potential for a solid 2022 when economies reopen and we learn to live with Covid, writes Tim Hext in his weekly bond, income and defensive strategies outlook


REMEMBER the complacent days of June?

When a limo driver transporting aircrew from the Delta-infected US was legally allowed to drive unvaccinated — with no mask and no testing?

When only a quarter of adults had their first vaccine shot and we were last in the OECD vaccination race (which was “not a race”?)

Before we discovered 99.9% control was 0.1% too little, spelling doom as the highly infectious variant began to spread?

This week we got a glimpse of how well the economy was doing back then with the latest National Accounts data from the Australian Bureau of Statistics.

We are now seeing what could have been.

Find out about

Pendal’s Bond, Income and Defensive Strategies funds

The National Accounts showed an economy 1.6% higher than pre-pandemic.

A rise of only 1.6% over 18 months would normally be cause for concern. But I think everyone can agree it was very impressive given everything that’s happened.

The V-shaped recovery did its job. Now we’ll no doubt debate which letter Recovery Mark II will look like as we dip down in Q3.

The June quarter was dominated by the return of the consumer.

Household spending was back to pre-pandemic levels as consumers returned. Service spending was up 1.3% in the quarter. Compensation of employees was also up 1.2% — more hours and more jobs.

GDP is a volume measure. A fall in export volumes and pick-up in imports means the external sector subtracted 1% from GDP, keeping the overall number down at 0.7%.

Year-on-year numbers show a rapid climb back from June last year:

However the nominal economy is more important to our hip pockets and here the news was even better.

Strong commodity prices, particularly iron ore, meant the nominal economy expanded 3.2% in the quarter.

The terms of trade got back to the dazzling days of 2012. The RBA will be thankful this time the Australian dollar is 73c rather than $1.10. 

Probably the most encouraging aspect of the report was business investment, which increased by 2.4%.

Generous write-offs no doubt played a part. But after a decade of flat-lining, the growth will be welcomed.

This is one area where we think the post-Covid economic reset will help.

Of course this is all rear-vision mirror now. But it shows the potential for a solid 2022 once economies reopen and we learn to live with Covid.

Bond markets largely ignored these numbers. But yields moved slightly higher this week, mainly on the back of better numbers out of Europe.

Perhaps the light at the end of the tunnel is getting brighter…

About Tim Hext and Pendal’s Bond, Income and Defensive Strategies (BIDS) boutique

Tim Hext is a portfolio manager with Pendal’s Bond, Income and Defensive Strategies (BIDS) team.

Pendal’s BIDS boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.

With the goal of building the most defensive line of funds in Australia, the team oversees A$22 billion invested across income, composite, pure alpha, global and Australian government strategies.

Find out more about Pendal’s fixed interest strategies here


About Pendal Group

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager


This article has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at September 3, 2021. It is not to be published, or otherwise made available to any person other than the party to whom it is provided.

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