Why Australians have lost $300 Billion this year

Mon, 22 Oct 2018  |  

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/3665708-004156966.html 

--------------------------------------- 

Why Australians have lost $300 Billion this year

The total wealth of Australians has dropped by close to $300 billion since the start of 2018.

How much of that is yours?

The fall in house prices and now the slump in the stock market is undermining the wealth of Australian householders.

This is an important trend given the solid link between the change in wealth and household spending. Numerous studies show that when wealth increases, growth in household spending is faster than it would otherwise be. It appears that householders view their extra wealth in a manner that sees them lower their other savings or use that wealth as collateral for additional borrowing fund extra consumption. They may even ‘cash in’ their extra wealth and use those gains to fund additional spending.

When they observe falling wealth, experience weak wages growth and realise their savings rates are perilously low, they will adjust their spending – down.

Discretionary spending on holidays, meals out, clothes and updates of car and other consumer durable goods will be curtailed.

Before this wealth destruction, household spending was soft. Up to their eyeballs in debt, consumers were starting to moderate their spending and this was a critical reason that bottom line growth in domestic demand was subdued. It was also a reason why the RBA was unable to follow through with its preconceived agenda to lift official interest rates – the economy could not possibly absorb such a move. As the year-end sales period for retailers moves into full swing, the drivers of consumer spending look parlous.

It would be a near miracle if retail spending (per capita) rises in the December quarter which could see bottom line GDP growth slip to 0.5 per cent or less.

With retailers set to embark of widespread discounting to reduce their inventory, inflation will remain extremely low, most likely well below the bottom of the RBA’s 2 to 3 per cent target range.

The implications for the unemployment rate are worrying. Already, the reliable ANZ job advertisement series has topped out, and is pointing to no further progress in reducing the unemployment rate. Further, the business expectations survey pointed to a dip in firms’ expected employment levels through to the end of 2018.

The RBA forecast for unemployment to hit 5 per cent and stay there are looking increasingly shaky.

The $7 trillion question is how much more wealth will be lost as house price falls continue and the stock market ructions continue to impact the ASX.

Whatever the exact amount, it is safe to say that the falls already witnessed are enough to hurt spending for the next few months. It means the RBA will not be hiking interest rates any time soon and indeed, the door is wide open to an interest rate cut early in 2019 if the deteriorate sees unemployment back above 5.5 per cent and inflation entrenched below 2 per cent.

Tough times indeed.

comments powered by Disqus

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.