Stephen Koukoulas

Stephen Koukoulas

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/2195187-050039322.html?soc_src=social-sh&soc_trk=tw 

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Ignore the spin, government debt is going up and up

Despite all the spin and torture of the data, government debt is still rising, the return to budget surplus is based on fickle economic forecasts and the Turnbull government is on track to be one of the top 10 taxing governments in Australia’s history.

Gross government debt is already at a record at $520 billion and it will keep rising through till at least 2027-28 when it will reach a new record high just under $700 billion. Net government debt (which allows for some of the assets the government owns to offset gross debt), will reach a peace-time record in 2018-19 when it hits 19.2 per cent of GDP, having roughly doubled from the time of the 2013 election.

This is a long way from promises of the Liberal Party prior to it taking office to run budget surpluses and pay off debt.

With Treasurer Scott Morrison delivering the Mid Year Economic and Fiscal Outlook, the new record levels for government debt were confirmed, notwithstanding a small narrowing in the budget deficit which was driven by an unexpected rise in the iron ore price which fed into company profits and taxes paid to the government, as well as higher superannuation taxes based on the solid performance of the stock market last year.

The budget is forecast to return to surplus in 2020-21, but this will require everything to ‘go right’ with the economy between now and then. GDP growth is forecast to pick up to 3 per cent in 2018-19 which, according to Treasury, will underpin a solid rise in employment and a further acceleration in wages. A stronger economy will deliver higher taxes which is the driver of the return to surplus, so the theory goes.

The illion Business Expectations Survey presented a positive outlook for the economy.

Business profits expectations for 2018 are the highest they’ve been since 2011, with companies set to boost employee numbers in the first quarter on the back of the positive outlook, according to illion’s latest Business Expectations Survey.

Data from the survey indicated businesses operating in the Finance, Insurance and Real estate sector had the highest profit expectations approaching the new year, followed by the Transport, Communications and Utilities sector.  The survey shows that overall, the Business Expectations Index is up 25.7 percent on the same period last year and the actual performance of businesses across all sectors is at a 13 year high.

Stephen Koukoulas, illion Economic Adviser, said there were a number of factors driving the positive outlook for 2018. “Corporate profits are getting a boost from lower costs, which are being driven by record low interest rates and on-going low wages growth – which is all occurring at a time of solid gains in the ASX”.

Friday, 08 December 2017 09:15

Oz economy: The good, the bad and the ugly

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2138618-050543271.html 

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Oz economy: The good, the bad and the ugly

The Australian economy continues to grow, but the pace of expansion remains moderate, being constrained by ongoing weakness in household spending and a slide in housing construction. The good news is further evidence of an upturn in private business investment and stronger growth in public sector infrastructure spending which is providing support for the economy.

At face value, 2.8 per cent annual GDP growth rate is quite good, but the devil in the detail on how that growth has been registered is why there are some concerns about the sustainability of the expansion as 2018 looms.

Household spending remains mired with growth of just 0.1 per cent in the September quarter. It seems the very low wage growth evident in recent years, plus data showing a small rise in the household saving rate, is keeping consumer spending in check.

Making up well over half of GDP, household spending will be the vital element of the economy into 2018. If wages growth remains weak, there seems little prospect of a pick up in household spending. And if household spending remains weak, bottom line GDP growth will be relying on a strong expansion in business investment and public sector demand.

The changing nature of work is causing significant disruption within the economy and for workers confronting an erosion of their take home pay and basic workplace conditions.

The precise nature of these changes is still unfolding in line with the spread of technology, the move to a more casualised workforce, globalisation and the steady decline of union influence.

The recent Per Capita round table discussion of these issues was particularly enlightening, not least because the participants helped to articulate how widespread these trends in the labour market are becoming, but they also covered what these changes might mean for the economy and the policy settings needed to ensure strong growth and a decent society.

One of the most potent manifestations of the workplace changes in the past decade or so has been the hit to wages. After several decades of annual wages growth around 3.5 per cent (which equates to an increase of around 1 per cent per annum in real terms), wages growth has slumped in recent years.

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/2073035-004930587.html 

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Watch out below! The Aussie dollar is about to sink

Watch out below! The Australian dollar is on the cusp of a significant fall. Already in recent weeks it has slumped from about 81 US cents to around 76 US cents at present and the factors that generally hold sway over the direction of the Aussie dollar suggest more falls are in store.

Commodity prices are going nowhere. The days of US$150 a tonne iron ore and massive prices for coal are well past. While the week-to- week changes in commodity prices can appear extreme, they are in a range a good 40 to 60 per cent lower than the peak levels around 5 years ago when the dollar traded as high as 1.10 against the US dollar.

Also keeping commodity prices lower is the fact that miners have slashed the cost of digging these commodities out of the ground. They can sell their output at a lower price and still have a healthy profit, because of this cost cutting. At the same time, the tens of billions of dollars invested by the mining sector over the past decade have build what are now fully functioning mines, adding to the supply of bulk commodities in the world market. While demand is still strong, the fact that output (supply) has run faster and cost of production has fallen, it means the overall level of commodity prices is broadly flat.

The big issue rapidly unfolding for the Aussie dollar is the erosion of the gap between global interest rates and those prevailing in Australia.

Friday, 24 November 2017 06:36

Late payment times down 10%

Late payment times down nearly 10 percent

According to the latest analysis by illion, the average late payment time for an Australian business was 12.6 days during the September quarter, down 9.1 percent from 13.9 days during the prior corresponding period. In addition to reducing the length of time for overdue bills, the data shows more businesses are also settling their invoices on time, demonstrating a broad shift in payment behaviour.

“If a company’s annual report is like the yearly medical check-up, then payment data is like Fitbit data. Timely payments are a crucial sign of business health. They are critical to small businesses running on slim margins, reducing the risk of job cuts and business failures.”

Simon Bligh, illion CEO

"In line with the pickup in business expectations and a more positive tone in other parts of the business sector, the sharp fall in late payments reflects better economic conditions and a clear improvement in cash flows. Business cash flows have also been boosted by higher profits, as seen in illion’s latest Business Expectations survey, which means firms are able to make their payments to suppliers in a timelier manner."

Stephen Koukoulas illion Economic Adviser

The full report is at this link: https://dnb.com.au/_media/documents/AU%20Late%20Payments%20Q32017%20Full.pdf 

Tuesday, 14 November 2017 16:16

Why the RBA is wrong, wrong, wrong

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2024247-032933611.html 

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Why the RBA is wrong, wrong, wrong

The latest Statement on Monetary Policy has confirmed the failure of the Reserve Bank of Australia to implement monetary policy settings that are consistent with its inflation target and objective of full employment.

It used to be the case that the RBA could never have a medium term forecast for inflation other than 2.5 per cent – the middle of its target range. The thinking was that if the RBA had a forecast an inflation rate of say, 1.5 or 3.5 per cent, that was based on current policy settings, it would adjust interest rates to ensure inflation would not reach those levels, and instead would return to the middle of the target.

The middle of the target range is an important goal for policy because it means the risks to the forecast are symmetrical. A forecast of, say 2 per cent, means that a 0.5 percentage point error could see inflation fall to a troublesome 1.5 per cent as much as it could rise to a perfectly acceptable 2.5 per cent, while a forecast of 2.5 per cent that turns out to be wrong by 0.5 per cent would still mean the RBA meets its target.

And even if the 2.5 per cent forecast turns out to be wrong as economic events unfold in ways not fully anticipated, it would adjust policy again to keep the focus on the 2.5 per cent. The RBA did this well until the global crisis came along and changed the growth, wage, inflation dynamics.

Which is where the recent RBA policy settings have been so wrong.

It has been well over a year since the last interest rate cut.

Thursday, 09 November 2017 17:32

Getting out of property and into stocks?

Getting out of property and into stocks

That seems to be a theme developing in the Australian market at the moment, with further evidence of a cooling in the housing market and a coincident lift in the value of the ASX hinting that those with money to invest are avoiding the ultra-expensive, low yielding housing market and instead are looking to the stock market for opportunities.

The Australia stock market is moving higher to the point where the ASX200 index is poised to break above 6,000 points for the first time since 2008. The past decade has been a rocky one for the Australian stock market. There has been the GFC, a commodity price boom and bust, speculators have jumped into and out of bank stocks based on extreme calls on the housing market and many local firms have been dealing with an unrelenting threat from foreign competition.

Some of these issues remain, but a combination of factors appear to be at play in the new found interest in the share market.

Sunday, 05 November 2017 15:27

The political and economic form guide

The spring carnival is in full swing and it’s time to turn on the lights and examine the political and economic form guide.

My tip is Uncertainty, which seems to have the best track record in politics and economics. So here we go.

Turnbull: Looked promising early in career but only fell across the line last start. Lost all form and hard to have.

Shorten: Difficult to fault recent form, although task made easier in recent starts with inferior opposition. The testing material.

Government Debt: A stayer which is going from strength to strength. Being helped by a lack of tax reform and will be thereabouts.

Reserve Bank: Has done nothing in over a year despite the urgings of the 1.8 million people either unemployed or under employed. Needs to improve.

I am reluctant to bag and slag the employment data, because it is all we have when looking at the health of the labour market. But there are a few quirky bits and bobs in the news of the wonderful run of job creation over the past year.

Employment rose by a remarkably strong 3.1 per cent in the year to September, a fabulous result.

But, and it is a big but, the results are at odds with just about every other indicator in the economy. EIther they are misleading or the employment data are misleading.

One way to check it to have a look at the economy the last time annual growth in employment was above 3 per cent. This takes us to the period around 2007 and into early 2008.

In 2007, annual real GDP growth was generally around 4 to 5 per cent, as you would expect with such jobs growth. The economy was on fire!  In 2008, the CPI surged by over 4 per cent which is again as you would expect given the boom in employment. The RBA was hiking rates at an agressive pace, with the official cash rate hitting a stonking 7.25 per cent in 2008. Wow! 

THE LATEST FROM THE KOUK

CLIMBING THE COVID MOUNTAIN

Wed, 29 Jul 2020

TEN ECONOMIC STEPS THAT FORM A PATHWAY TO THE TOP

THEKOUK and EVERALDATLARGE OUTLINE A WAY FOR THE PEOPLE OF AUSTRALIA TO CREATE AND MAINTAIN SUSTAINED PROSPERITY

Covid19 has opened a door for Australians to positively accept significant changes that will lead to a shared good. This rare opportunity enables us to achieve sustainable economic and social goals that create a new ‘normal’ as our way of life.

These Ten Steps are presented as non-partisan recommendations to the Australian Parliament in the firm belief that, if they embrace them, the Australian economy and society will be greatly enhanced after the Covid19 pandemic has passed.

*A job for you if you want one.
A significant increase in part time and casual employment can be created that will enable you to enjoy a more creative and peaceful lifestyle and to live longer and better. The traditional age at which you would have been expected to retire will become obsolete as a result. An access age for pension and superannuation will become your choice. This will enable you to remain in paid work for as long as you want to, on a basis that you choose, while boosting the productivity and growth of Australia.

*You will get wage increases that will be greater than your cost of living.
A demand for enhanced innovative skills at all levels of employment will be created as the economy grows in strength, thereby enhancing your stature in the workforce and enabling executive salaries and bonuses to drop to levels that are accepted as justifiable by employees, shareholders and customers.

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.