What surging commodity prices mean for the Aussie economy

Wed, 13 Apr 2016  |  

This article first appeared on the Yahoo7 Website at this address: https://au.finance.yahoo.com/news/what-surging-commodity-prices-mean-for-the-aussie-economy-234024921.html 

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What surging commodity prices mean for the Aussie economy

If you blinked you might have missed it. Commodity prices are surging and this is great news for the Australian economy.

Back in January, when irrational markets and some new year fear was leading some economists to recommend “sell everything”, commodity prices crashed to their lowest levels in about a decade.
With the global economy expanding at a decent, if not spectacular pace, and many of the mining companies scaling back output which is dampening fresh supply, it was always inevitable that merchants of gloom would be wrong and prices would rebound.

To be sure, commodity prices are well down on the peak levels in the frenzy of the commodity price boom, but some of the price increases from the early 2016 lows are spectacular.

In US dollar terms, the price of oil has risen 55 per cent; iron ore is up almost 60 per cent; gold up 18 per cent; copper up 10 per cent; even the beleaguered coal price is up around 15 per cent. These are impressive increases and are well above the levels assumed by Treasury in the Mid Year Economic and Fiscal Outlook and in the RBA’s most recent forecasts.

High commodity prices, if sustained, will help most mining companies return to decent profit and incomes in the economy will riser. It will also halt the phenomenon of mine closures and capacity reductions which is clearly a positive for the economy more generally.

If, as is most likely, commodity prices continue to move higher in the months ahead, albeit at a less rapid speed than the period since January, the boost to the economy will extend to an upturn in business investment and employment.

Vitally important for the commodity price cycle will be the performance of the global economy which on most recent readings, is doing well. To be sure, global GDP growth in the 3.25 to 3.5 per cent range for both 2016 and 2017 is not all that strong, but it is sufficient to underpin growth in demand for commodities which in itself helps explain the recent price rebound.

As drivers of commodity demand, it is encouraging to see the Chinese economy growing at around 6.5 per cent with India above 7 per cent. In terms of the large industrialised economies, the Eurozone is expanding moderately, the US is on track for another year of 2.5 per cent growth and even Japan is set to register some growth.

If commodity prices were to rise at even half the recent pace over the remained of 2016, the gloom and pessimism that has framed a lot of the economic discussion of recent years will quickly be superceded by issues of a strong economy, the rekindling of inflation pressures, a stronger Australian dollar and the need for interest rate hikes.

Australia is not at this point yet. But with every uptick in commodity prices, that day is getting closer.

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Will falling house prices trigger the next Aussie recession?

Tue, 17 Jul 2018

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/will-falling-house-prices-trigger-next-aussie-recession-000039851.html

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 Will falling house prices trigger the next Aussie recession?

House prices are falling, auction clearance rates continue to drop and there is a such sharp lift in the number of properties for sale that, for the moment, no one is willing to buy at the given asking price.

Potential house buyers who have held off taking the plunge in the hope of falling prices seem to be staying away, perhaps hoping for further price falls. But also influential factors forcing buyers away is the extra difficulty getting loans approved as banks tighten credit standards, then there are concerns about job security and associated awareness of probable cash flow difficulties given the weakness in wages growth. It is remarkably obvious that house prices will continue to fall and this poses a range of risks to the economy.

Research from a range of analysts, including at the Reserve Bank of Australia, show a direct link between changes in housing wealth and consumer spending. This means that when wealth is increasing on the back of rising house prices, consumer spending is stronger.

This was evident in Sydney and Melbourne, in particular, when house prices in those two cities were booming in the two or three years up to the middle to latter part of 2017. Retail spending was also strong. Looking at the downside, in Perth where house prices have fallen by more than 10 per cent since early 2015, consumer spending has been particularly weak.

Punters point to by-election troubles for Labor

Mon, 16 Jul 2018

 

If the flow of punter’s money is any guide, Labor are in for a very rough time on Sublime-Saturday on 28 July when there are five by-elections around Australia.

In the three seats where the results are not a forgone conclusion, the flow of money on Liberal candidates over the last few days has been very strong.

The Liberal Party are now favourites to win Braddon and Longman and in Mayo, Liberal candidate Georgina Downer has firmed from $4.20 into $2.75.

If the punters are right, Sublime-Saturday would see Labor lose Braddon and Longman and could see Liberal’s sneak back in Mayo.

If so, it would be odds on that Prime Minister Turnbull would go to the polls as soon as possible, not only to take advantage of the by-election fallout, but, from a different angle, go before the housing market and the economy really hit the wall, probably in late 2018 or 2019.

BRADDON

Liberals $1.70 (was $2.25)
Labor $2.05 (was $1.65)

MAYO

Liberals $2.75 (was $4.20)
Centre Alliance $1.35 (was $1.15)

LONGMAN

Liberals $1.50 (was $2.00)
Labor $2.50 (was $1.85)