Stephen Koukoulas

Stephen Koukoulas

When Prime Minister Tony Abbott meets with US President Barack Obama and senior officials from the US administration, the economy is likely to be front and centre of their discussions.

With this being the case, Mr Abbott has a wonderful chance to show off just how wonderful Australian economic conditions have been, how adroitly economic policy has been implemented in the last few years and how that is showing up in an economic expansion and fiscal settings that people in the US could only dream about.

Recent data confirm the Australian economy into its 23rd year of unbroken economic growth. This is in stark contrast to the US which endured recessions in 2001 and of course in the period from 2007 to 2009. "Australian's have forgotten how to spell 'recession'", Mr Abbott could quip, such is our economic success. The fiscal stimulus measures taken in during the global economic crisis, Mr Abbott could highlight, were a critical factor stopping Australia diving into a nasty recession with hundreds of thousands of jobs saved, new jobs created and financial stability maintained during these troubled times.

The Australian is at it again. It is running another fact-less story with the express intent of undermining a key policy of the previous Labor government and what is disconcerting this time, is that it is pushing the line of the tobacco industry.

Today there is a Page One story by Christian Kerr which makes the sensational claim that "Labor's nanny state push to kill off the country's addiction to cigarettes with plain packaging has backfired, with new sales figures showing tobacco consumption growing during the first full year of the new laws".

The "exclusive" story based on "new data obtained by The Australian" claims that "tobacco sales volumes increased by 59 million 'sticks' ... last year". The source of this shock finding is "industry monitor" InfoView which is "backed up by retailers, consumer marketers and the industry". Only Philip Morris and the Australasian Associates of Convenience Stores are cited.

Fortunately, the story is wrong.

The increase in the minimum wage has sparked the usual hand-wringing about Australia being a high wage country. Those demoaning the modest 3 per cent increase in the minimum wage and wage levels more generally, suggest wage rates should be lower.

Here is a look at some minimum wage levels in other countries. I for one would never want Australia to aspire for lower wages and view the high income levels in Australia as a sign of our massive prosperity and now 23 years without a recession.

Here we go - average hourly wages rates, US$. 

Afghanistan  US$0.57

Angola US$0.71

Argentina US$4.31

Australia US$16.88

Bangladesh US$0.09

Belgium US$11.69

Benin US$0.36

Brasil US$2.11

Canada US$9.95

China US$1.19

Estonia US$2.73

France US$12.22

Gambia US$0.12

Greece US$5.06

Haiti US$0.37

India US$0.28

Indonesia US$0.52

Japan US$8.32

South Korea US$4.63

Luxembourg US$14.24

Malawi US$0.16

Mongolia US$0.82

Niger US$0.34

Poland US$2.97

Russia US$1.04

Slovenia US$5.84

Taiwan US$3.88

UK US$10.02

US US$7.25

Vietnam US$0.30

So Australian wages are high, which is a great thing. We should hope wages here stay high as it is a sign of our economic strength and prosperity.

Source: World Bank

The March quarter national accounts confirmed the economy accelerating to an above trend growth pace in the first quarter of 2014. GDP rising 3.5 per cent is a sign of the robustness of the economy in the past six months in particular (annualised GDP in last two quarters was 4.0 per cent) and it is clear that, in normal circumstances, the RBA would be looking to normalise (hike) interest rates from the current record low 2.5 per cent.

Things are not normal.

Almost half of the 3.5 per cent GDP growth in the past year has been due to China buying the raw materials that are rolling off conveyor belts 24 hours a day, 7 days a week.

Tuesday, 03 June 2014 00:00

Negative interest rates explained

The European Central Bank contemplating negative interest rates as one of its policy tools to kick start the moribund Eurozone economies. 

I've had a number of questions about the concept of negative interest rates and thought it best if I reproduce an article I wrote for Business Spectator in 2012 on the topic.

The link is here https://www.businessspectator.com.au/article/2012/8/9/australian-news/zeroing-negative-rates 

The full story is below.

This article first appeared on The Guardian website on 28 May 2014:  https://www.theguardian.com/commentisfree/2014/may/28/will-abbotts-economic-negativity-become-a-self-fulfilling-prophesy 

Will Abbott's economic negativity become a self-fulfilling prophecy?

Some two weeks after the budget and more than eight months after being sworn in to office, the Abbott government continues to trash talk the economy, seemingly unaware of the damage it is inflicting on consumer sentiment and business conditions.

While unrelenting negativity on the economy and budget was an election-winning strategy from opposition, it is a self-defeating tactic for a government. People want the government to govern, not to tell them how bad things are, even if they are and certainly when they are not.

Tomorrow morning, RPData will release its house price data for May which will show a substantial fall of about 1.9 per cent in house prices in the month. This fall is based on the already published data in the five main Australian cities - the data from other cities may add or subtract a tenth or two from this result.

As noted here previously and elsewhere, it is not clear whether this price fall is just a seasonal blip, some noise in the data or some other influence and that the general uptrend in prices of the past two years is being sustained.

Be that as it may, get set for some alarmist news reports on house prices falling sharply. Nothing sells like bad news and a near 2 per cent monthly drop in house prices ("a record fall!") will likely get the attention of the media.

Thursday, 29 May 2014 00:00

Capex goes crapex

Let's get a little perspective on the Capex data, which has been welcomed by a range of people saying it is "not so bad when you look at the details".

Well, I am looking at the details and note the following.

Capex (business investment) has fallen 8.5 per cent over the last two quarters – this is the largest six-month fall since Australia was climbing out of its last recession in 1993. Sounds pretty grim to me, acknowledging that it is from a high base.

Between June 2012 and March 2014, Capex has fallen a meaty 10.1 per cent.

Here is a little scenario to consider when it comes to HECS debt and the idea flagged by Education Minister Christopher Pyne that when a person dies, the accumulated HECS debt would be repaid to the government from that person's estate.

Think of someone who goes to university, studies hard and when they turn 21, have a degree and a $30,000 HECS debt.

If, for example, the person lives to 81, when they die and if they have never had paid employment that required them to cover their HECS debt, they will leave a massive debt which will need to be paid from their estate.

Here is some basic and non-controversial maths.

The price of gold has fallen to US$1,265 an ounce this morning, for reasons that no one knows. In Australian dollar terms, gold is around $1,365 an ounce which is back to the level first reached in January 2009.

Think of it - that is more than five years of zero capital growth, no interest or yield and a considerable cost of holding the shiny dirt in the form of security such as a safe or safe deposit boxes at a bank.

What a dog of an "investment".

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   

---------------------------- 

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.