Blog

Sun, 01 Jan 2017  |  

It’s that time of the year – making the calls for the year ahead for the economy and financial markets.

Key themes:
Ongoing sluggish growth in Australia with house prices set to weaken markedly, possibly fall. US (and most global) stock markets to fall, perhaps quite sharply. US dollar to weaken, Euro to rise strongly, linked to a reversal to the current market over reaction to US politics. The moves have been irrational. RBA to cut interest rates, bond yields to have only a limited sell off.

Without further ado, here are the Top 10 on the economy and markets, plus a couple on sport and horse racing.

Sat, 31 Dec 2016  |  

At the start of 2016, I posted my Top 11 tips for 2016. It has been a mixed bag with a couple of issues of timing and of course changes of view through the year taking their toll. Suffice to say, it was a borderline pass for the sum of all forecasts.

Outlined below are those 11 forecasts with my comments on their success of otherwise in brackets, in bold. Included is my self-rating out of 10 for each forecast.

1. Real GDP growth in Australia will accelerate to around 3.25 per cent, driven by strong exports, solid growth in household spending, a further lift in dwelling construction and a meaty contribution from public sector demand. Business investment will remain horribly weak, but even that might find a base during the course of the year. There seems precious little chance that GDP growth will slip below 2 per cent at any stage in 2016. [Well, against almost all expectations, annual GDP growth spiked to 3.3 per cent in the June quarter, before sling to 1.8 per cent in the September quarter. What looked a great forecast around September, ended the year looking not so hot. I jumped onto the slower growth band wagon around mid year when there were cleans signs of growth stagnation. My self rating is 6 out of 10]

Tue, 27 Dec 2016  |  

This is the podcast of my chat, along with Eliza Owen, Property Market Analyst with Corelogic and Mark, someone looking to buy their first house on ABC Radio National.

Listen in - I reckon it was a good discussion.

https://www.abc.net.au/radionational/programs/breakfast/digging-deep-into-the-housing-debate/8149112 

Wed, 21 Dec 2016  |  

This article first appeared on the Yahoo 7 Finance at this link: https://au.finance.yahoo.com/news/aussie-economy-faces-significant-downside-risks-in-early-2017-005824675.html 

---------------------------------------------------

Aussie economy faces significant downside risks in early 2017

2016 is coming to an end with the economy muddling through - at best. Indeed, as the year has progressed, things have got worse across a broad range of indicators which suggest there are some significant downside risks into the early part of 2017.

Importantly, GDP growth was negative in the September quarter and annual growth slipped to a tepid 1.8 per cent which is a rate of growth rarely recorded in Australia. It’s bad news. At the same time, the unemployment rate has been stuck near 5.75 per cent having threatened to break lower earlier in the year. Any jobs that are being generated are overwhelmingly part-time which is a further signal that all is not well with the economy. It is simply not growing fast enough.

The most recent data also show a further weakening in wages growth, to a record low in fact, which is putting pressure on household budgets and dampening new consumer spending. In simple terms, it is difficult for households to build spending when wages growth is barely keeping up with inflation.

Tue, 20 Dec 2016  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/business/2016/dec/19/coalitions-policy-ineptitude-exposed-as-myefo-points-to-multiple-credit-downgrades 

---------------------------------------------------

Coalition's policy ineptitude exposed as Myefo points to multiple credit downgrades

When Joe Hockey, as treasurer, delivered the Coalition’s first budget in May 2014, he framed the government’s policy agenda around budget deficits of $10.6bn in 2016-17 and just $2.8bn in 2017-18. The budget was to swing into surplus in 2018-19 and every year beyond that.

With two-and-a-half years of Liberal–National party economic policy settings since that Hockey budget, today’s treasurer, Scott Morrison, has outlined the results of that plan, plus the impact of new policies and economic changes in today’s midyear economic and fiscal outlook (Myefo). Morrison has confirmed that the current projections are for budget deficits of $36.5bn in 2016-17 and $28.7bn in 2017-18, meaning the 2017-18 deficit alone is some six times larger than projected by Hockey.

The Hockey framework meant that Australia’s sovereign triple-A credit rating was assured with all three major ratings agencies noting the fiscal trajectory and underpinnings of solid economic growth as reasons for this favourable assessment. Helping also was the projection that net government debt would peak at low level of 14.6% of GDP under the Hockey 2014 budget scenario.

Alas, the strategy outlined in 2014 is in tatters.

Mon, 19 Dec 2016  |  

Last week, I had a terrific chat with Paul Colgan and David Scutt, my good friends at Business Insider. It was a terrific conversation with the team who produce insightful and useful commentary and analysis on the Australian economy and financial markets.

The pod cast of our conversation is at this link: https://www.businessinsider.com.au/podcast-devils-and-details-with-stephen-koukoulas-on-gdp-and-how-the-rbs-call-to-sell-everything-worked-out-2016-12 

It runs for about 45 minutes and covers a lot of issues about the economy, markets and where to in 2017. Listen in.

Thu, 15 Dec 2016  |  

It really is the silly season.

The government is thinking that it might be able to fix the budget deficit problem by abolishing $100 notes. Sure, this is an exaggeration, but it is at least looking into the issues of cracking down of the cash economy and crime with the humble $100 note in its sites. The inference is that the $100 notes facilitates crime and boosts the cash economy.

There are a couple of points to note.

The $100 note was introduced in 1984 and since then, the consumer price index has risen by 200.5 per cent. The purchasing power of the first $100 note has dropped to around $33.30 in today's dollar terms. $100 just doesn’t buy as much as it did 1984.

If bank note issuance was to broadly track inflation, the government is behind the curve in issuing a $200 note. Even a $300 note.

Mon, 12 Dec 2016  |  

Government debt is currently a little over $463 billion, which is up around $190 billion in the three and a bit years since the Coaltion won the September 2013 election. The pace at which government debt is rising is faster now than during the stimulus measures during the GFC. And this is with Treasurer Morrison trying to hike taxes and cut spending in his quest for a budget surplus. 

At current levels, governemnt debt is already at a record high and based on reasonable projections, it is set to exceed half a trillion dollars during 2017. The Mid Year Economic and Fiscal Outlook due next week will confirm this. It is also likely to confirm that debt will approach three-quarters of a trillion dollars around 2022 if it is honest with its projections.

Mon, 12 Dec 2016  |  

This article first appeared on the Yahoo 7 website at think link: https://au.finance.yahoo.com/news/is-low-aussie-inflation-a-bonus-or-a-burden-234345826.html 

--------------------------------------------------- 

Is low Aussie inflation a bonus or a burden?

Since the Coalition government was elected in September 2013, the rate of inflation has been very low. This is generally favourable news at it keeps cost of living pressures in check and means that even with modest wages growth and low interest rates, many householders are able to maintain their purchasing power.
It is important to note that this low inflation climate in Australia has been driven by well contained global inflation pressures and the disinflationary effects of a weak domestic economy.

The low overall inflation rate masks some huge divergences in price pressures between different goods and services.

In the three years of Coalition government, prices have fallen in some significant categories of household spending, most notably petrol (down 23.1 per cent), computers and other electronic equipment (down around 10 to 15 per cent), cars (down 1.7 per cent) and clothing (down 4.3 per cent). These price falls have largely been the result of global issues, especially the drop in oil prices, and the on-going high productivity / low cost production of goods in many merging market countries. Advances in technology have also worked to drive many prices lower.

Thu, 08 Dec 2016  |  

This article first appeared on The Guardian website at this address: https://www.theguardian.com/business/2016/dec/07/coalition-policy-has-gone-badly-wrong-and-the-rba-needs-to-cut-interest-rates?CMP=share_btn_tw 

----------------------------------------------------------

Coalition policy has gone badly wrong and the RBA needs to cut interest rates

When gross domestic product and employment fall, it is usually the result of a policy error or an external shock to the economy.

An external shock can be ruled out as global GDP growth and financial markets have performed well during 2015 and 2016. This means that the economic weakness now being seen is the result of a policy error.

Today’s September quarter national accounts confirmed a quite stunning 0.5% fall in GDP, which, with hindsight, dovetails with the recent labour force data that shows employment having fallen 25,700 since July. Something has gone wrong.

While the Reserve Bank did cut interest rates in May and August this year, at 1.5% Australian interest rates are among the highest in the industrialised world. The RBA was reluctant to cut because it did not believe the rapid deceleration in inflation to be anything other than a temporary phenomenon and it looked at the growth side of the economy, including wages growth, with rose-coloured glasses, which meant it was generally expecting GDP and employment growth to “eventually” pick up. For the same reason, it also placed little weight on the run of unexpectedly low inflation results.

THE LATEST FROM THE KOUK

Why don’t governments deliver policies that are good for the electorate?

Mon, 21 Aug 2017

This article first appeared on The Adelaide Review site at this link: https://adelaidereview.com.au/opinion/politics/paying-fair-share/ 

 ------------------------------------------------

Paying Their Fair Share

It’s the age-old question: why don’t governments deliver policies that are good for the electorate? Well, the answers are numerous.

Politics and policymaking should be simple. After all, being in government and delivering what voters want — making them happy in other words — and increasing the chances of re-election seems to be the proverbial win-win scenario.

Which begs the question, why don’t political parties do it?

Why don’t they deliver policies that are good for the electorate and good for their re-election chances?

Let’s cut to what the voters, in general, want.

A policy framework where each person who wants a job gets a job is key. In addition, access to quality and affordable health care and education, from kindergarten to university to trades training is fundamental. There are other issues that are basic, simple and fair.

Voters want the government to provide aged-care services that treat the older members of society with dignity. We want decent infrastructure, especially pubic transport and roads. We want people who are doing it tough to be supported by a welfare safety net — a decent rate of pension, unemployment benefits and disability support.

So far, so good.

Australia has given up on solving unemployment

Sun, 20 Aug 2017

This article first appeared on The New Daily website at this link: https://thenewdaily.com.au/money/finance-news/2017/08/16/stephen-koukoulas-unemployment/ 

-----------------------------------------------

Australia has given up on solving unemployment

 It is a sad state of affairs to realise that the current crop of Australian policy-makers have effectively given up on reducing unemployment.

Treasury reckons that the lowest the unemployment rate can go without there being a wages and inflation breakout is around 5.25 per cent.

The Reserve Bank of Australia notes something similar, forecasting that even when the economy is growing strongly at an above-trend pace, the unemployment rate will hover between 5 and 6 per cent.
The current unemployment rate is 5.6 per cent or some 728,100 people – enough to fill the Melbourne Cricket Ground about seven times.

Given the Treasury and RBA estimates, it looks like Australia will never see fewer than about 700,000 people unemployed – no matter what kind of improvement we see in the latest jobless figures on Thursday.
It seems to be a peculiarly Australian issue. In the US, the unemployment rate is 4.3 per cent, in the UK it is 4.5 per cent, in Japan it is 2.8 per cent while in Germany, the unemployment rate is 3.9 per cent. And none of these countries is experiencing a wage/inflation problem. Indeed, even with the very low unemployment rate in Japan, wages are actually falling.