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 

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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.

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Don’t look now – you are almost certainly poorer than a year ago

I am sorry to kick off the new year with some gloomy news of your finances.

It is never nice to discuss how much money you have lost, but if you are a home owner in Sydney, Melbourne, Perth or Darwin and if you have a superannuation nest egg, the odds are you are less wealthy today than you were a year or two ago.

Here are some uncomfortable facts.

The Australian stock market, where the bulk of your superannuation assets are likely to be invested, has slumped 11 per cent since August, reducing the value of stocks by around $200 billion.  No doubt your superannuation has suffered part of this loss.

At the same time, home owners in Sydney, Melbourne, Perth and Darwin are seeing the value of their homes getting crunched.

Here are some examples.

Falling dollar reflects global concern all is not well in the Australian economy

Mon, 07 Jan 2019

The article first appeared on The Guardian website at this link: https://www.theguardian.com/business/2019/jan/03/falling-dollar-reflects-global-concern-all-is-not-well-in-the-australian-economy 

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Falling dollar reflects global concern all is not well in the Australian economy

The Australian dollar was hit hard overnight, Australian time, slumping below 70 US cents before a sharp and more extreme move saw it temporarily crash to a low of 67.40 US cents. It subsequently recovered marginally, but remains weak at around 69.40 US cents.

Rather than focus on the micro aspects of minute-by-minute or hour-by-hour moves in the dollar, which can be more noise than substance, the trend for the dollar over the past year has been down.

In January 2018, the Australian dollar was trading at 81.50 US cents.

There is increasing concern from global investors that all is not well with the Australian economy. Policy is in a do-nothing phase. Entrenched low wages growth is hampering growth in household spending. This is being complemented, in a negative way, by a sharp fall in wealth as house prices drop and the share market weakens, both of which will be a negative for the economy during 2019. This is because householders are simply not getting the income growth nor wealth accumulation needed to allow them to keep spending at a rate that will see the economy expand at a pace that will generate upside wage and inflation momentum. Strategies aimed at reducing debt and paring back new borrowings mean, by definition, weaker economic growth over the near term.