This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/australia-fallen-recession-200014477.html
Has Australia fallen into a per capita GDP recession?
There is no doubt the Australian economy was weaker in late 2018 than it was during the first half of the year. It seems to have kicked off 2019 on a similarly weak note.
Recent economic news has been unambiguously poor and it follows the dismal GDP results released last month which showed per capita GDP falling 0.1 per cent in the September quarter. That was a poor result and forced most thinking economists to revise down their assessments of Australia’s economic health. If the upcoming December quarter GDP result, which is due for release in early March, reveals another drop in per capita GDP, the economy on a per capita basis will be going backwards.
This, quite clearly, is not good news.
It means living standards for the average Australian are falling and it poses questions about the current stance of economic policy.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/will-economic-data-influence-election-date-200237239.html
The data flow could influence the timing of the election
Ready, get set!
There will be a Federal election within the next four months and the main question is the exact date when we will go to the polls. The current speculation focuses on three dates – relatively early on 2 March or nearer full term on 11 or 18 May.
The decision will be taken by the Prime Minister, Scott Morrison, over the next few weeks.
One issue which will undoubtedly be critical to his thinking on the timing of the poll will be the economic data flow that will be released during the election campaign.
Just think – getting a poor GDP result or a rise in unemployment or weak wages data slap bang in the middle of the campaigning. It could be enough to derail the election strategy of the government and further erode its economic credentials. It is also important because the economy is clearly weakening. House prices are falling sharply, destroying the wealth of home owners, wages growth remains weak, the stock market is sick and consumer spending is unsurprisingly slow. There is also evidence in the various job advertisement series that the labour market is cooling which could see the unemployment rate creep up in the months ahead.
2 March Vs 18 May
The economic calendar suggests Mr Morrison would be wise to call the election for 2 March.
This article first appeared on the Yahoo Finance web page at this link: https://au.finance.yahoo.com/news/dont-look-now-almost-certainly-poorer-year-ago-211934583.html
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.
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
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.
A well-established and immutable rule of market and economic forecasting is never to gloat when you happen to get a forecast right. There are many reasons for this, not least the certainty that other forecasts over many years have been wide of the mark, a fact that brings a balance to the forecasting debate.
That’s said, it is always useful to review the big forecasts and learn why your forecasts were right or wrong and to use this experience and knowledge to refine and develop future forecasts.
I do this every year - whether good or bad - and here we go with an assessment of the forecasts I made at the start of 2018 for the year ahead.
It’s actually a little embarrassing to do my annual assessment, because they were fantastically good. Anyone following those forecasts would have made some good money, which, frankly, is what these forecasts are all about. I would be delighted to see if anyone out there can find someone with a better track record for the year, so please let me know.
Ok, it’s time to put my neck on the chopping block and make some forecasts for the economy and financial markets for 2019.
While I agree with my good friend Con Michalakis, market guru and CIO of State Super, that point forecasts on a calendar year basis are largely an artefact of the calendar and do not meet the demand of serious investment strategy, I do find it a useful discipline to make such forecasts each year. These forecasts capture where my analysis and judgment reveal which fundamentals are at greater risk of moving a particular way and most importantly, what this might mean for markets.
For me, the broadest themes for Australia in 2019 are on going sub-trend economic growth, while wages and inflation will remain disappointingly low. The RBA will finally succumb to facts on the economy and will cut interest rates to below 1 per cent in the latter part of the year and the Australian stock market, which has been a dog in recent times, will surge, rising perhaps 20 per cent by the end of the year. Bond yields are likely to fall further in the first part of the year, although a lot of the rally I was looking in 2018 for has already occurred.
There might be another moderate yield reduction the mid to longer end of the curve, but once the RBA finally gives a bit of monetary policy stimulus, the yield curve will steepen in the latter part of 2019.
Now some details.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/smoking-levels-continue-plummet-210432040.html
Smoking levels continue to plummet
Some good news on health – Australians are smoking less with the amount of tobacco consumed dropping to a record low in the September quarter 2018, and this includes data back to 1959 when Australia’s population was about 60 per cent below the level of today.
The peak consumption of tobacco came in the mid-1970s. Since then, there has been an unrelenting fall, with the timing of the downturn broadly coincided with the increasing prominence given to the link between smoking and early death and a range of government regulations aimed at reducing smoking rates.
Most recently, the introduction of plain packaging laws, together with hefty increases in excises – taxes in other words – has continued to drive the consumption of tobacco lower. The decline in the volume of tobacco consumed in Australia has crashed a staggering 24.4 per cent since the plain packaging laws were introduced at the end of 2012. This is despite population growth of around 8.5 per cent over that time.
Factors other than the introduction of plain packaging laws were also driving smoking levels lower – as noted, the sharp rise in excise taxes, many years of health awareness, tobacco advertising bans, restricting smoking in public places and even the fact many smokers have died and therefore are not buying tobacco products are all driving smoking to record lows.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/35-house-price-crash-unlikely-201301480.html
Why a 35% house price crash is 'very unlikely'
Australian house prices dropped again in the September quarter to be 2.8 per cent below the December quarter 2017 peak, based on the Australian Bureau of Statistics dwelling price series. In many respects, the data is old news – the comprehensive Corelogic house price series for November has already been released and they show further price falls in the last two months.
House price bet
Why the ABS dwelling price series matters, to me at least, it that it forms the basis of the bet on house prices I made in September with Tony Locantro, Investment Manager with Alto Capital in Perth.
Tony and I had a bet that at any stage between now and the time the December quarter 2021 dwelling price data are published by the Australian Bureau of Statistics, the price index for any of Sydney, Melbourne or the aggregate eight capital cities prices is down 35.0 per cent or more, I will give Tony $15,000 cash. Conversely, if by the time the December quarter 2021 data are published and the peak to trough decline is 34.9 per cent or less in Sydney, Melbourne and the eight capital cities, Tony has to give me $2,500.
These generous odds and benchmark for the 35.0 per cent price fall that I offered Tony reflected the absurd nature of a forecast from DFA’s Martin North to the effect that his forecast was for house prices to “drop 40 to 45 per cent over the next three years or so”.
This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/dont-fall-spin-scott-morrisons-budget-surplus-no-certainty-224422761.html
Don’t fall for the spin - Scott Morrison’s budget surplus is no certainty
Prime Minister Scott Morrison could yet be guilty of prematurely declaring that his government will deliver a budget surplus in 2018-19.
Sure, tax revenue is growing at a rapid pace and the government is underspending on a range of government services, but there are still seven long months to go between now and the end of the financial year that might yet blow up the surplus commitment.
PM Morrison’s ‘return to surplus’ boast is based, it appears, on hard data for the first four months of the 2018-19 financial year on revenue and spending information from the Department of Finance. These numbers do look strong, at least in terms of the budget numbers and if the trends on revenue and spending continue, the budget will probably be in surplus. Treasury will be factoring in ongoing economic growth, no increase in the unemployment rate and buoyant iron ore and coal prices over the remainder of the financial year. These forecasts and hence the budget bottom line are subject to a good deal of uncertainty, as they are every year.
If, as is distinctly possible, the economy stalls in the March and June quarters 2019, commodity prices continue to weaken and if there are some unexpected increases in government spending, the current erroneous forecasts for revenue and spending could leave the budget in deficit.
In the wake of the September quarter national accounts, and with accumulating information on house prices, dwelling investment, the global economy and spare capacity in the labour market, I have revised my outlook for official interest rates.
For some time, I have been expecting the RBA to cut the official cash rate to 1.0 per cent, a forecast that has been wrong (clearly) given its decision to leave rates steady right through 2018.
That said, it has been a highly profitable call with the market pricing interest rate hikes when the call was made which has yielded a decent return as time has passed.
My updated profile for RBA rates is:
May 2019 – 25bp cut to 1.25%
August 2019 – 25bp cut to 1.00%
November 2019 – 25bp cut to 0.75%
The risk is for rates to 0.5% in very late 2019 or in 2020
It will be driven by:
- Underlying inflation remaining below 2%
- GDP growth around 0.25 to 0.5% per quarter in 2019
- Annual wages growth stuck at 2.5% or less
- Global growth slowing towards 3%
- Labour market under-utilisation around 13 to 13.5%
There are likely to be other influences, but these are the main ones.
AUD, as a result, looks set to drop to 0.6000 – 0.6500 range.