Blog

Thu, 10 Apr 2014  |  

Not surprisingly, the move to an above trend growth rate for the economy over the past half year or so is now generating a decent rate of employment growth. What's more, it now appears that the unemployment rate has peaked and that by this time next year, the unemployment rate will likely be around 5.5 per cent, perhaps a little less.

Over the three months of the March quarter, employment has increased by 88,000, to register the largest quarterly increase since the March quarter 2012.

Tue, 08 Apr 2014  |  

The favourable news on the economy is unrelenting.

After the flood of extremely positive news last week, there has been further reinforcement of the clear upswing in a couple of series released in the last day and a bit.

Yesterday saw the number of job advertisements, as measured by the ANZ, lock in five straight months of increase in trend terms. There is now no doubt that employment growth will also lift in the months ahead and the unemployment rate will start to fall very soon.

Sun, 06 Apr 2014  |  

 

This article, written on behalf of Per Capita, first appeared on The Drum website:

https://www.abc.net.au/news/2014-04-03/koukoulas-our-rolls-royce-budget-can-handle-a-flat-tyre/5363402

Australia is in a fine budget position and the deficit isn't nearly as big an issue as some politicians would have you believe. Just ask the credit rating agencies, writes Stephen Koukoulas.

The budget debate in Australia is so pathetically inane that the fiscal blame game has reached a point where neither side of politics wants to take responsibility for Australia's triple-A rated fiscal settings.

This perverse situation shows up with the notion that debt and deficit are political poison rather than the medicine that, when used wisely, has delivered spectacular wealth-creating returns for the economy.

Fri, 04 Apr 2014  |  

The latest $700 million bond issue by the Abbott government brings the cumulative total of gross borrowing since the election to $64.15 billion. What is extraordinary about this is not the borrowing itself, but the fact that after 7 months in office, the government has not implemented any meaningful policies to stem the rise in debt accumulation.

The AOFM has indicated it will be borrowing a further $1.4 billion next week.

Indeed, as the Mid-Year Economic and Fiscal Outlook showed, policy decision taken by the new government added $13 billion to the budget deficit.

Thu, 03 Apr 2014  |  

The run of data in the few days since Tuesday's meeting of the RBA Board has continued the trend of strength, confirming a substantial lift in the non-mining investment parts of the economy.

The RBA appears to be too gloomy with its views on growth and sanguine on inflation as it happily leaves interest rates at record lows, inflating house prices along the way and allowing the rest of the economy to pick up momentum at an increasingly worrying pace.

Tue, 01 Apr 2014  |  

As I sit back and contemplate what is, I often wonder which is more damaging to the Australian economy: rapidly inflating house prices which are starting to look and smell a bit bubble-ish, or on the other hand, a strong Australian dollar which sort of, maybe, kind of, perhaps is a bit overvalued?

The lever pullers at the RBA clearly think it's the Aussie dollar rising that is the biggest threat with its decision today to let the house price surge continue unchecked with interest rates being held at record lows.

I don't agree with the RBA. One reason is that I am not sure the Australian dollar is all that over valued, while I am also unsure whether interest rate hikes would see its value rise for any sustained period. After all, if interest rate differentials were the main driver of currencies, the Japanese yen would be worth next to nothing and the Turkish Lira would be a world beater.

Mon, 31 Mar 2014  |  

My old sparing partner and AFR scribe, Christopher Joye, thinks "when [house] prices do start sliding, it is not inconceivable that we could see unprecedented 10 to 20 per cent losses across the board".

While I am clearly worried about the current run up in house prices and can see a period where house prices will falter as the RBA moves to a monetary policy tightening cycle, Chris' view of such large falls seems to be askew.

As a result, I am offering Chris a simple two-tiered offer based on his forecast.

Mon, 31 Mar 2014  |  

The RPData five city house price index rose a thumping 2.3 per cent in March which is a stunning rate of increase at a time when house prices are already elevated.

For the first three months of 2014, the RPData series shows house prices up 3.5 per cent, or an annualised pace of close to 15 per cent. This is a rate of increase that must be causing the RBA some concerns as it continues to sit on official interest rates at a record low 2.5 per cent.

While the RBA does not target house prices with its monetary policy settings, it is well aware of the macroeconomic policy risks that come with house price booms... and busts. House price booms generally lead to a pick up in speculative borrowing and a ratcheting down of lending standards by financial institutions as every one wants to get on board the price surge.

Fri, 28 Mar 2014  |  

It is refreshing to see the RBA catching up to my view about the strength of the domestic economy. In recent days and weeks, RBA officials have finally acknowledged some of the general risks to inflation associated with a clear strengthening in the non-mining parts of the economy and from what is an increasingly worrying lift in house prices.

The RBA Board meeting next Tuesday, 1 April, is likely to throw a few more hints that the current 2.5 per cent cash rate is not appropriate for the current fundamentals. The foreign exchange market understanding this as the AUD powers to 0.93 US, even though it is taking an eternity for the many strategists to roll over to the new information.

Booming double digit growth in house prices, a record high level of new housing construction, rising commodity prices, exports surging in both volume and value terms and consumer demand expanding at a solid clip are threatening to put a rocket under inflation, which has already been marching higher since the middle of last year.

Thu, 27 Mar 2014  |  

The Federal election is still probably 125 or 130 weeks away, but many of the online bookmakers are already offering odds on various aspects of what might happen in politics between now and polling day and of course, who might win.

OUTCOME:

The Coalition government are warm to hot favourites to win the 2016 election, at $1.45 versus $2.70 for Labor, despite some of the polls that currently have Labor well ahead on a two-party preferred basis. It just goes to show what punters, and the bookies, think of the predictive power of polls two and a half years away from election day. 

THE LATEST FROM THE KOUK

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

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   

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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. 

Or irrelevant. 

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

Thu, 02 Jan 2020

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.

GDP Growth

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.