Blog

Wed, 17 Aug 2016  |  

I recorded a podcast with the team at Business Insider:  Here is the link for what was a good fun chat. 

https://www.businessinsider.com.au/podcast-with-stephen-koukoulas-on-the-reputation-of-the-abs-fiscal-policy-and-twitter-2016-8 

From BI's Paul Colgan:

On the Devils and Details economics and markets podcast this week we’re joined by Stephen Koukoulas, one of Australia’s best-known economists. “The Kouk” is a former chief economist at Citi and he also once led global research for TD Securities in London. 

He was also a senior economic adviser to the Gillard government, so he has a particular expertise on fiscal policy. The fiasco of the national census on Tuesday kicks off our conversation but we also took the opportunity to tap Stephen for his insights on the state of national economic policy.

Wed, 10 Aug 2016  |  

The annual Breakfast with the Economist series is just a few weeks away.

It's in Auckland on Tuesday 30 August; Sydney on Wednesday 31 August and then Melbourne on Friday 2 September. It's free (other than your time) to attend. 

To register, click on this link:  https://www.financialpublications.com.au/events/abf-breakfast-with-the-economists-series-2016/ 

Standard & Poors Chief Economist, Paul Sheard will open each breakfast with a view on global conditions. Like previous years, he'll give terrific insights into things like negative interest rates, QE and why growth and inflation are so low.

In Auckland, the panel members will be Michael Gordon, Sharon Zollner, Nick Tuffley and Chris Green.

In Sydney there will be Bill Evans, Su-Lin Ong, Shane Oliver and Jo Masters.

Melbourne will have Bill Evans, Alan Oster, Alan Kohler and Callam Pickering.

I will be moderating all of the discussions. So for the best economics event of the year, register now and turn up, rain, hail or shine.   

Fri, 05 Aug 2016  |  

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/the-real-reason-home-ownership-is-so-unachievable-004146758.html 

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The real reason home-ownership is so unachievable

Home ownerships rates have fallen in Australia over the last 15 years. The recent report on Household, Income and Labour Dynamics showed that home ownership rates have dropped from 68.8 per cent of households in 2001 to 64.9 per cent in 2014. The fall among younger age cohorts has been more acute than for older people.

Almost all of the focus of the falling home ownership rates has been on rising house prices as the key factor forcing younger age groups, in particular, to rent rather than buy. Home ownership rates among older generations remain relatively high.

There is no doubt that high house prices in parts of Australia – Sydney and Melbourne in particular – have played a role deterring younger people from entering the housing market. Saving a 20 per cent deposit for an average house is, for example, roughly twice as burdensome now as it was two decades ago.

Even though record low interest rates have offset the financial burden of servicing a larger mortgage that results from higher borrowings, a 20 per cent deposit on an average loan takes around 100 per cent of average annual household income today compared with 50 to 60 per cent of income in the 1990s.

These issues are very real but they explain only a part of the story for declining home ownership rates. They have been over-emphasised in their importance as reasons behind the fall in home ownership rates. In the middle of last year, the Reserve Bank of Australia examined the causes of the decline in home ownership rates, especially for younger people and its findings are enlightening.

Thu, 04 Aug 2016  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/commentisfree/2016/aug/02/interest-rate-cut-too-little-too-late-by-an-rba-with-flawed-glass-half-full-attitude?CMP=share_btn_tw 

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Interest rate cut too little, too late by an RBA with flawed glass half full attitude

In the dismal science of economics, the Reserve Bank of Australia has failed dismally when it comes to its inflation target and managing demand in the Australian economy.

On Tuesday it cut official interest rates to 1.5%, but in doing so it leaves the Australian economy condemned to some of the highest interest rates in the industrialised world. The RBA has not looked all that closely for overseas guidance – this latest cut comes years after the US, the eurozone, Britain and Canada set interest rates at 0.5% or less.

This harsh assessment of the RBA’s slow and cumbersome approach to interest rate cuts is backed up by several vital macroeconomic indicators. The annual increase in the consumer price index has been below 2% – the bottom of the RBA target band – since late 2014. There is no evidence in recent data that inflation will pick up any time soon.

The unemployment rate in Australia is the same as it was at the depths of the global financial crisis. This extraordinary lethargy in the labour market has occurred simply because the economy has been too weak to create enough jobs to lower it.

Tue, 02 Aug 2016  |  

This article first appeared on the Adelaide Review web site at this address: https://adelaidereview.com.au/opinion/business-finance-opinion/government-needs-change-economic-policy-tack/ 

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Government Needs To Change Economic Policy Tack

The Turnbull Government starts its second term with a dilemma and a mental block on policy.

With the economy muddling along and growing at a weak pace – with unemployment rising and inflation dead in the water – the government needs to change policy tack to help deliver a stronger rate of growth in the years ahead and to stem any unwelcome rise in the unemployment rate.

There is a mistaken notion that such pro-growth policies will cost the budget money at a time when the budget deficit is uncomfortably wide. Making the government uneasy in the post-election climate is the fact that the budget deficit problems are at a point where the credit rating agencies are threatening to take away Australia’s important triple-A credit rating.

Fri, 29 Jul 2016  |  

This article first appeared at the Adelaide Review website at this address: https://adelaidereview.com.au/opinion/business-finance-opinion/dangers-sluggish-household-spending-rate/#.V5k-QyDuwq8.twitter 

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The Dangers Of A Sluggish Household Spending Rate

One of the disappointing aspects of the performance of the economy over the past few years has been the moderate and frankly unimpressive rate of growth in household spending.

To be sure, households are continuing to increase their purchases of goods and services, but the growth rate of that extra spending has been mediocre and is one reason why the overall economy is muddling along rather than registering stronger job-creating growth. The reasons for this sluggishness in spending have several causes all of which are important.

Recall that households need funds or access to money to be able to spend. In its most simple form, they can use their income, run down savings or they can increase their borrowing to fund extra spending. Indeed, there are no other sources of funds by which to lift spending.

Thu, 28 Jul 2016  |  

This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/why-is-australia-s-inflation-rate-so-stunningly-low-021727792.html 

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Why is Australia's inflation rate so stunningly low?

Australia’s inflation rate is stunningly low. At just 1.0 per cent in annual terms, it is well below the bottom of the RBA target band of 2 to 3 per cent and it is low for reasons that are not all that favourable. In simple terms, the economy is too weak and the unemployment rate is too high.

There is a simple and well established link between the strength of an economy and the rate of inflation. It suggests that when an economy is strong with people spending at a rapid pace, businesses ramping up their investment and the unemployment rate falling, inflation is high or rising.

It is high because in these sorts of strong and optimistic economic times, businesses feel that they can edge up their selling prices without driving away customers. This is, by definition, inflation. The optimistic customers are willing to pay the higher prices because their financial circumstances are favourable.

What usually happens in these circumstances is interest rates go up. In lifting interest rates, the Reserve Bank wants to discourage borrowings and encourage savings and those people with debt will have to allocate more of their otherwise disposable cash to pay interest on that debt. This means they have less spare cash for elsewhere in the economy and as a result, the economy slows and with a lag, inflation falls back.

Tue, 26 Jul 2016  |  

This article first appeared on the Yahoo7 Finance website at this address: https://au.finance.yahoo.com/news/get-set-for-a-august-interest-rate-cut-045119121.html 

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Get set for an August interest rate cut

Get set for a further interest rate cut on 2 August, which is the date of the next meeting of the Board of the Reserve Bank of Australia. With the economy expanding at a moderate pace, at best, with the unemployment rate appearing to edge up and global economic conditions only fair, the case for a 25 basis point rate cut, to a fresh record low of 1.5 per cent, is solid. It will, nonetheless, be the inflation data next Wednesday that will help to lock in the case for lower rates.

Based on available information, inflation is set to rise by 0.8 per cent in the June quarter, which will leave annual inflation at 1.4 per cent. During the June quarter, there was a sharp lift in petrol prices driven by the jump in global oil prices. This alone will account for around 0.25 percentage points of the 0.8 per cent inflation rate.

The high inflation rate for the quarter (0.8 per cent equals annualised inflation around 3.25 per cent) would seem high enough to prevent the RBA from cutting. After all, the RBA acts with its interest rate settings to keep inflation between 2 and 3 per cent and a 0.8 per cent quarterly rise might be considered the start of a worrying uptick in price pressures.

Sun, 24 Jul 2016  |  

A little over six months into the year, I am doing what almost no other economist does and present a scorecard on my forecasts for 2016. The record is mixed – some big wins, some big errors.

On 1 January 2016, I had my Top 11 tips for the year for economics, politics and markets. Those forecasts are reproduced below, with my assessment of how those forecasts are travelling in bold.

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. [This forecast is looking quite good although there are some headwinds for GDP in the second half of the year. A reasonably good forecast.]

Sun, 24 Jul 2016  |  

This article first appeared on The Guardian web site at this address: https://www.theguardian.com/australia-news/2016/jul/22/infrastructure-spending-should-be-based-on-need-not-cheap-money?CMP=share_btn_tw 

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Infrastructure spending should be based on need, not cheap money

As Australian government bond yields fall to record lows, debate is hotting up over whether the government should take advantage of these low borrowing costs to increase infrastructure spending.

Such ideas are based on a nice sentiment, but fall short of sound criteria for big spending. If infrastructure is needed, if it is an essential element for aiding productivity and equity, then it should be done based on a proper cost-benefit analysis regardless of the borrowing costs.

It would be absurd to think that infrastructure spending on power generation, roads, rail and ports would not occur simply because interest rates were high. It is a similar story with low interest rates. Why borrow and build infrastructure that may not do much to boost productivity, efficiency and equity just because 10-year government bond yields are at 2%?

To see how infrastructure spending driven by low interest rates can go badly wrong, one only has to look at the experience in Japan.

THE LATEST FROM THE KOUK

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: https://www.theguardian.com/australia-news/2017/mar/16/why-are-bill-shorten-and-labor-scared-to-run-on-the-economy 

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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.