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: 

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: 


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: 


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.

Wed, 07 Dec 2016  |  

It is always interesting to superimpose facts over perceptions and one that springs to mind is the perception that the Coalition side of politics are better at economic management than Labor.

With the horrid September quarter GDP result today, I thought it useful to dust off the average quarterly GDP results of each government since 1972.

You draw your own conclusions.

Average quarterly GDP

Abbott/Turnbull      0.58%

Rudd/Gillard          0.62%

Howard                 0.89%

Hawke/Keating      0.90%

Fraser                   0.54%

Whitlam                0.76%

Note that in today's dollar terms, 0.01% difference on GDP is approximately $42.3 million per quarter or $170 million a year. 



Wed, 07 Dec 2016  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Is the Australian economy going backwards?

The news on economic growth is shockingly weak. GDP fell a stunning 0.5 per cent in the September quarter to register only the fourth decline in the last 25 years. It was the second worst GDP result since 1991. It is not good news given the ‘normal’ or long run average rate of quarterly GDP is around 0.75 per cent.

The shock GDP crash follows a raft of other surprisingly poor news on the economy since the July election, where the Coalition campaigned and won on an economic platform of “jobs and growth”. Employment has dropped an alarming 25,700 since the election, as employers have shed staff in reaction to the shrinking economy.

At the same time, annual growth in wages has dropped to an all time low, which is undermining household incomes and with that, the spending power of consumers. It is little wonder household spending growth remains weak and consumer sentiment is hovering around its long run average level. Reflecting these moribund conditions in the economy, underlying inflation has fallen to a record low as firms increasingly resort to price discounting to sell their products.

Fri, 02 Dec 2016  |  

This article first appeared on the Yahoo 7 Finance website at this address: 


Are Aussie interest rates about to hike?

There is a slowly growing vibe that the next move in interest rates in Australia will be up. Perplexingly, money markets are starting to price in higher interest rates for reasons that are paying scant regard to local economic news.

It is a case of the local market reverting to its unthinking, unquestioning attitude to what the RBA tells them in private “Chatham House rule” meetings plus the lead from the US where its strong economy will see the Fed hike its interest rates a few times over the next six months.

In Australia and for the RBA, it is an approach that is ignoring a litany of weak economic indicators.

Think about this for a moment for the Australian economic scorecard. Private sector business investment is in free-fall to be down 13 per cent in the last year and 33 per cent in three years. Underlying inflation is the lowest ever recorded and has been below the bottom of the RBA target range for over a year. Wagers growth has slipped below 2 per cent which is the weakest wages growth in many decades. Employment growth has stalled and underemployment is at a record high.

Tue, 29 Nov 2016  |  

This article first appeared on the Adelaide Review website at this link: 


2016: A Most Reasonable Year for the Economy

The Australian economy is in reasonable shape as 2016 draws to a close. Real GDP growth is around three per cent, inflation is 1.5 per cent while the unemployment rate is hovering near 5.75 per cent.

To be sure, it would be desirable if growth was a little stronger and unemployment lower, but given the collapse in mining investment, consumer spending being constrained by record low wages growth and the pressure of global disinflation on local producers, 2016 has been a stronger year than almost all forecasters were anticipating at the start of the year.

There are reasons to think that 2017 will also be a reasonably good year for the economy.

Commodity prices are edging up and are higher now than at the start of 2016, and, in some cases, this is by a large amount. This is leading to a lift in national income and nominal GDP growth. The Australian dollar, which has been stuck around US 75 cents for many months now, is providing a competitive boost which will further underpin economic growth. One only has to look at the surge in tourism and education exports to see how the lower Aussie dollar is helping the economy.

Sat, 26 Nov 2016  |  

It’s here!

The book I co-wrote with Alan Kohler, Our World in Charts, is available for purchase.

Here is the link to buy it now: 

As the blurb says: An old proverb says: "a picture paints a thousand words" and in this book, the pictures are the charts. The World in Charts has over 150 charts that depict a range of economic, market and social issues. There is a lot of information in each chart and each tells a story which authors Alan Kohler and Stephen Koukoulas explain.

Charts give context. An annual budget deficit of $30 billion sounds a lot, but relative to the size of the economy in 2017 it's about the average of the last 40 years. A chart can show this. Ask a good economist, "how are you today?" and they should answer, "relative to what?" Charts show how the economy or markets are today relative to the past.


Why are Bill Shorten and Labor scared to run on the economy?

Tue, 21 Mar 2017

This article first appeared on The Guardian website at this link: 


Why are Bill Shorten and Labor scared to run on the economy?

The dust is settling from the Western Australian election and there are some implications for the way the federal Labor party should conduct itself from now until the next election if it is to enhance its chances of winning.

For the Liberal party, the lessons are clear. It might sound trite to mention it but its electoral success will depend almost exclusively on its ability to deliver materially better economic conditions between now and election day.

For Labor, the task is easier. It needs to take the initiative on the economy, economic policy, the budget deficit and government debt and highlight how poor the Coalition has been in most aspects of economic managements since the 2013 election.

In those three-and-a-half years of the Coalition being in charge of the economy and budget, growth has been sluggish despite favourable conditions in Australia’s major trading partners. The Australian economy should be stronger because of the welcome news of the Australian dollar falling sharply in recent years, which has provided a boost to domestic economic conditions. What’s more, interest rates have been cut to record lows, yet the economy has been struggling to register annual GDP growth near 2.5%, the unemployment rate is the same as when the Coalition won the 2013 election, wages growth has plummeted to a record low, and the government debt has grown significantly faster than during the previous Labor government, which of course included the fiscal stimulus measures that kept Australia out of recession.

Ever since the mid-1990s, the Labor party has been reluctant to run hard on issues to do with the economy. For some reason, it is riddled with self-doubt that stems, it appears, from the high interest rates of the late 1980s and early 1990s, and its proactive use of budget debts and moderate debt accumulation during the global crisis to ensure Australia kept growing and to protect an estimated 200,000 jobs.

A $2 billion national building snow job

Sat, 18 Mar 2017

Prime Minister Malcolm Turnbull reckons his Snowy Hydro $2 billion investment is a “nation building project”.

Yes, that is what he said. Really. Turnbull think a one-off $2 billion government infrastructure project is “nation building”.

Let’s look at $2 billion in the context of the Australian economy.

In the December quarter 2016, Australia’s GDP was $435,445 billion dollars (seasonally adjusted). This works out at $4,769 billion a day which makes the $2 billion snow job about 10 hours GDP.

Useful? Sure!

Nation building? Ha!

By 2020, Australia’s GDP will be around $510,000 billion a quarter and $2 billion will be akin to about 8 hours GDP.

Here’s what elese $2 billion is now days.