This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html
The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke
For many people, the cost of the fires is immeasurable.
They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.
Life has changed forever.
As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.
The rebuilding task will be huge.
Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.
Then there are the thousands of cars and other machinery and equipment that will need to be replaced.
What's ahead for the Australian economy and markets in 2020
Happy New Year!
2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.
It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community.
2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.
The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.
In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.
It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.
2019 – It was yet another terrific year for my forecasts – I hope you were on board
Like all credble economic and markets forecasters, at the end of each year I review my forecasts for the past year. I do this to learn from my mistakes, to see what I got right and test whether my logic and reasoning were correct or wide of the mark. Check the other market economists for their stock take from a year ago.
As 2020 is about to kick off, my forecasts for 2019 shaped up well. I am actually thrilled with the broad themes, and thanks to the clients and followers for their kind feedback during the year – we will no doubt get a chance to celebrate some more and hopefully lock in another good year in 2020.
I will be posting my 2020 forecasts and themes shortly – so stay tuned for that.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/frydenberg-trash-coalitio-232753145.html?utm_source=marketing&utm_medium=Link_Post&utm_campaign=Yahoo_Finance&utm_term=Social
How the Treasurer risks trashing the Coalition's economic credibility
Treasurer Josh Frydenberg has a huge budget problem. He also has a huge economic problem.
And this is all of his own making by preferring a budget surplus over economic and jobs growth.
The problem has the potential to smash the economic management credibility of the Coalition government. In the Mid Year Economic and Fiscal Outlook this week, the budget surplus estimates for the four years 2019-20 to 2022-23 were scaled back in part because the economy was weaker than assumed at the time of the April 2019 budget and because the government has spent a little bit more in relation to the drought and some infrastructure projects.
The budget surplus forecasts in MYEFO are:
• 2019-20: $5.0 billion
• 2020-21: $6.1 billion
• 2021-22: $8.4 billion
• 2022-23: $4.0 billion
Note that annual GDP in Australia will be in excess of $2 trillion in 2019-20 which means these are small surpluses – well under 0.5 per cent of GDP.
This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/rba-tools-reluctant-042742904.html
The RBA has the tools to fix the economy, but is reluctant to use them
The Reserve Bank of Australia has made a range of serious policy errors over the past few years, and the Australian economy is weaker because of those mistakes and misjudgments.
Not only is the RBA on track to miss its inflation target for six years, and perhaps longer, the persistently high unemployment rate in concert with record low wages growth is the result of the RBA’s tardiness in cutting interest rates because of its textbook obsession with house prices and household debt.
It is a mistake that has cost the economy tens of billions of dollars in lost output; employment is many thousands of people below what could have been achieved; and all the while wages growth hovers near record lows undermining the wellbeing of the workforce. What’s worse, the RBA seems to have thrown in the towel on trying to meet its inflation target, even though that target was confirmed a month ago in the recent update of the Conduct of Monetary Policy between the RBA and Treasurer.
In this context, Deputy Governor of the RBA, Guy Debelle, gave a fascinating speech earlier this week on the topic of employment and wages.
This article first appeared on the Yahoo website at this link: https://au.finance.yahoo.com/news/household-wealth-booming-200022930.html
Household wealth is booming: What this means
In other words, half a trillion dollars.
That is approximately the amount Australian household wealth has increased since the start of July 2019, with house prices surging, the Australian stock market moving higher, and savings increasing.
The bulk of the gains have occurred via rising house prices, which according to CoreLogic, are up over 5 per cent in less than five months. This move in house prices has added around $360 billion to the value of housing and is driving the rebound in wealth. At the same time, the level of the ASX has risen by around 2 per cent with a further $40 billion being paid out in dividends. This allows for the recent pull back on prices as new banking scandals are exposed.
In these conditions of rising wealth, the household sector is getting a serious financial reprieve, despite the ongoing weakness in wages and the still very high level of unemployment and underemployment which afflicts almost 14 per cent of the workforce.
The good news is that this wealth creation is likely to spark a rise in household spending growth once the gains are widely acknowledged in the community and then feed into consumer sentiment. This is most likely to show up in the first half of 2020, after the usual lags work their way through the economy. History shows that when we consumers experience growth in our wealth, we are more inclined to lift our spending.
Earlier this year, RBA researchers Diego May, Gabriela Nodari and Daniel Rees found that:
“When wealth increases, Australian households consume more. Spending on durable goods, like motor vehicles, and discretionary goods, such as recreation, appears to be most responsive to changes in household wealth”.
We saw this, in the reverse, in the period from the middle of 2017 to the middle of 2019 when Australia-wide house prices fell by 10 per cent, crunching wealth levels. It was no surprise that during this period, household spending growth slumped. The retail sales component fell to its weakest since the early 1990s recession. Consumer spending and confidence was not helped by the coincident weakness in wages growth and the policy mistake of the RBA which refused to cut official interest rates, even though the economy was mired in a low inflation, low growth and falling wealth climate.
Thankfully, common sense has since prevailed at the RBA and it has cut interest rates three times since June.
Demand for housing has also lifted with shrewd first home buyers taking advantage of favourable affordability and investors also stepping back in after the May election saw the return of the Coalition government and the demise of Labor’s proposal to reform negative gearing tax laws. The current wealth surge unfolding now is occurring at a time when there is also a sharp decline in the debt-servicing burden as interest rates fall. This has the dual effect of freeing up cash flows for some consumers and allows other to accelerate their debt repayment.
For the moment, the labour market remains weak and wages are still stuck in the mud. These will constrain any near term lift in household spending, but the wealth lift will be vital for sparking a pick-up in consumption, probably in the new year when the effect is more widely observed and entrenched.
It adds to the scenario where 2020 is looking like a better year for the economy with bottom line GDP growth set to hit 3 per cent in the second half of the year. If the wealth effects build further over that time and business investment and infrastructure spending continues to lift, the economy in 2020 just might register its strongest growth rate in a decade.
This article first appeared on the Yahoo Finance website on 20 May 2019 at this link: https://au.finance.yahoo.com/news/why-labor-lost-the-election-so-badly-211049089.html
How Labor lost the federal election SO badly
The Coalition did not win the election, Labor lost it.
The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.
The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.
Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.
In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.
This was an error.
If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.
This parlous economic position could have been cited by Labor for its reform agenda.
This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/animals-crucial-australian-economy-192927904.html
Why animals are a crucial part of the Australian economy
Animals are a critical part of the Australian economy, either for food, companionship or entertainment.
But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.
Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.
The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.
This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/inflation-how-low-can-you-go-004522764.html
Inflation: How low can it go?
The Reserve Bank of Australia’s policy embarrassment continues with the September quarter consumer price index data showing the quarterly underlying inflation at 0.4 per cent, which translates to an annual rise of just 1.4 per cent.
In underlying terms, annual inflation has never been lower.
This locks in 4 straight years where underlying inflation has been below 2 per cent, the bottom of the RBA’s 2 to 3 per cent target.
It locks in 5 years where inflation has been at or below 2.5 per cent, the mid-point of that target.
It locks in just under a decade since inflation was above 3 per cent.
Missing the inflation target so badly for such an extended times says quite plainly that the RBA policy actions were wrong, particularly when other central banks around the world were able to meet their inflation targets with pro-active monetary policy settings.
Until the post-election interest rates cuts which have seen the official cash rate belatedly reduced to 0.75 per cent, the RBA held interest rates at a high level. So high, in fact, that annual economic growth slumped to a decade low under 1.5 per cent, this has seen the unemployment rate remain at or above 5 per cent and wages growth tracked plumbed near record lows.
This article was written on 23 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/economy-perking-up-kouk-195329917.html
Don’t look now, but the economy just might be perking up
Every month or so, I undertake a total revamp of my assessment and forecasts for the economy.
With this wipe-the-slate-clean revamp, I take account of the most up to date data, incorporate policy changes and I build in new judgments on the outlook for the global economy.
And so it was last week, when I was revamping my GDP forecasting spreadsheet to assess the risks of recession, the prospects for a booming rebound and all things in between.
It is a lot of fun and helps me to throw forward pre-empt how the economy and, importantly, financial markets will travel. That said, I am not one of those eggheads who lives and dies by what my model is telling me, but such spreadsheet fiddling makes me sit up and take notice of what is happening.
The last update, last week, was one of those times.
Economy to perk up in 2020: Here’s why
Indeed, for the first time in quite a while, I am getting a bit excited about the upside for the economy in 2020. Not a boom, but solid, strong, decent economic growth lies ahead. In fact, I now put the chances of the economy falling into recession in 2020 or 2021 for that matter at about 0.1 per cent. Never say never, but I am more likely to beat Usain Bolt over 100 metres than the Australian economy is of cascading into recession.
Here’s the how and why of how I reached that conclusion.