Browsing articles from "December, 2008"

Wednesday 3rd December 2008

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Australia chalks up a – brief -trade surplus

by Alan Thornhill

Australia has just recorded its first trade surplus for six years.

That happened in the September quarter.

But retail sales are still glacial.

The Statistician reported both developments yesterday.

The Federal government was delighted.

The Treasurer, Wayne Swan, described the narrowing in Australia’s balance of payments, that reulted, as “significant.”

That produced a balance of payments deficit of $9.7 billion.

“This is the lowest current account deficit – as a proportion of GDP – since 2002,” Mr Swan said.

Sadly, though, the improvement won’t last.

As Mr Swan, himself, admitted, it was due largely to very high prices for the coal and iron or that Australia exports.

The global economic downturn put an end to all that.

Import volumes rose by 13.2 per cent over the year.

But that wasn’t necessarily a bad thing.

For as Mr Swan noted:”The increase in imports was driven mainly by increases in capital goods.”

Retail sales, though, remained almost flat, rising by just 0.2 per cent each, in the months of August, September and October.

This was a particularly poor result, as other figures showed Australia’s population rising strongly, with a 1.7 per cent surge over the year.

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Wednesday 3rd December 2008

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Monetary and fiscal policy now “working together”

by Alan Thornhill

“This does mean that monetary and fiscal policy are working together.”

That’s how Steve Conroy, speaking for the Federal government, welcomed the news that the Reserve Bank had boldly decided to cut its marker interest rate by 100 basis points, to 4.25 per cent.

Senator Conroy who represents the Treasurer in the upper house, also noted with approval that the Commonwealth bank had decided to pass on the rate cut, in full, to its customers.

The National Australia Bank later announced that it, too, would pass on the cut in full.
And when the elephant moves – smaller creatures must do the same – or get crushed.

The Reserve Bank Governor, Glenn Stevens, who announced the rate cut, said the nation’s marker rate is now “at its previous cyclical low point.”

That is a seven year low.

In normal times, the governor’s observation would be taken to mean that further rate cuts had virtually been ruled out, altogether.

But events now are far from normal.

So anything could happen.

Even Mr Stevens, himself, expects developments that would once have been thought very odd.

Such as falling prices.

He saidÂ it is likely that Australia’s inflation, which is still at 5 per cent, would soon start to fall.

Mr Stevens also said private demand would remain subdued “in the near term.”

“Global disinflationary pressures will assist in this regard,’ Mr Stevens added.

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Tuesday 2nd December 2008

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Banks face fierce rate cut pressure

by Alan Thornhill

Australia’s banks will be under great pressure today to pass on the full 100 basis point cut, that the Reserve Bank announced this afternoon.

The public will demand a swift – and complete – pass through.

And the banks can expect no support from the Federal government, if they hang back.

The government, itself, is taking big budgetary risks, to avert the risk of a recession.

It will expect matching efforts from all quarters, including the banks.

Perhaps surprisingly, though, it is the Federal opposition that has been most vocal, so far, on this issue.

The shadow minister for housing and local government, Scott Morrison, warned that rate cuts alone would not make mortgages and rents “more affordable. ”

He urged Australia’s banks to pass on any rate cut “in full.”
Earlier predictions suggested that the Reserve Bank would cut interest rates by about 75 basis points today.

However the Reserve Bank decided on a full 100 basis point cut.

It announced thatÂ at 2.30pm.

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Tuesday 2nd December 2008

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Wall Street plunges

by Alan Thornhill

Australian stocks will open lower today, after a sharp slump on Wall Street.

The Dow Jones Industrial IndexÂ closed almost 680 points down, amid fears that the global recession will be deeper than first thought.

The index plunged 679.95 points to close atÂ 8,149.09.

This fall wiped out half of the previous week’s gains.

The chairman of the US Federal Reserve Ben Bernanke said the Fed might buy American Treasury bonds and notes, to pump cash into a weak market.

He admitted, though, that the Fed now has few further options, when it comes to rate cuts.

The fresh fears also affected oil prices.

Oil futures fell $US5.20 a barrel to $US49.23, a three year low.

The US motoring giant, Ford, is now talking of selling Volvo, to raise cash.

That is its last European brand.

All major indicators on the US market were down.

The S&P 500 indexÂ plunged 80.03 points to 816.21.

And the tech heavy NASDAQ composite index was 137.50 points down at 1,398.07.

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Tuesday 2nd December 2008

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Skill shortages “will persist”

by Alan Thornhill

Australia is still short of skilled workers, despite rising unemployment.

The shortages are occurring at both professional and trade levels.

This was confirmed in a study just published by the Clarius Group.

It showed that highest levels of skills shortages were for chefs, metal trades workers, hairdressers, health professionals, automotive trades personnel, food trades workers, computing professionals, building and engineering professionals, skilled construction workers and printers.
The study was developed with KPMG Econotech.

The Clarius Group’s executive chairman, Geoff Moles, warned that the economic downturn would not necessarily spell the end of Australia’s skills drought.

“At a macro level, if you are managing IT, a healthcare organisation or need engineers to work on an infrastructure project, the lack of skilledÂ labour could compound the pressure the economic slowdown is placing on your company’s growth prospects,” Mr Moles said.

KPMG Econotech senior economist, Chris Murphy, predicted that Australia’s unemployment rate, which now stands at 4.3 per cent, would peak at 5 per cent by the end of next year.

However the Clarius Group’s research suggests thatÂ unskilled workers will be hit hardest by rising employment.

“At this stage, we don’t expect the increase in unemployment to eliminate skill shortages across the country,” Mr Moles said.

“Skilled labour demand and supply fluctuation will continue to vary from industry to industry,” he added.

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Monday 1st December 2008

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Expect a big rate cut tomorrow

by Alan Thornhill

Expect a rate cut of 100 basis points, when the Reserve Bank board meets tomorrow.

The board won’t want to be accused of hanging back, when the nation is struggling with a global economic crisis.

And with Australia’s marker interest rate still at 5.25 per cent, the board has plenty of room to move.

A cut of just 75 basis points had originally been the common expectation.

But the threat still posed by the crisis has become clearer since then.

The government has also shown, with a series of initiatives, just how serious it is about avoiding a recession.

Governments have very good reasons, of their own,Â to do that.

Nothing wrecks a Federal budget quite as effectively as a recession.

Recessions boost spending, on big ticket items, like unemployment benefits.

They also cut tax flows, because poeople who are out of work – and companies that are not profitable – don’t pay taxes.

Australia’s interest rates are still relatively high, by international standards.

They would remain that way, if the Reserve Bank announced only a small cut, of say 50 or 75 basis points, tomorrow.

That’s why we expect the bigger cut.

The bank’s decision will be announced at 2.30pm.

We will keep you in the loop.

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Monday 1st December 2008

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Enyoying a global crisis

by Alan Thornhill

To misquote a member of the incoming Obama administration “What’s the good of having a global economic crisis, if you can’t enjoy it?”

Kevin Rudd and the State premiers were certainly enjoyed theirs at their weekend meeting, making plans to spend an extra $15 billion, over the next few years.

But the results should, largely, be positive.

Mr Rudd said $1 billion will be set aside to “lift business confidence.”

Expect that to be spent on things like better regulation,improved safety standards and competition reform.

That’s just peanuts, though, against the total of $64.4 billion that is to be spent on health programs over the next six years, with:-

an extra $4.8 billion earmarked for public hospitals,
$1.1 billion set aside to train new doctors, nurses and other health professionals
and $750 million to be spent upgrading Australia’s emergency wards.

Another $872 million will also be spent, over that time,Â on preventative health programs.

As expected, there will be extra money, too, for education.

The Deputy Prime Minister, Julia Gillard, said an extra $635 million is to be spent on government primary schools, over the next five years.

Expect much of that money to go to poorer government schools, which have been badly neglected over recent years.

These measures are just part of aÂ new plan is expected to create 133,000 new jobs.

The plan is certainly both ambitious and risky.

What’s all too easy to forget, though, is that doing less is also risky, at times like these.

Recessions are hugely expensive.

They disrupt both private and government finances.

And they often produce lingering effects that last for manyÂ years.

The traditional wisdom, which suggests that we should all be cautious -and stop spending – when a downturn arrives does have its dangers.

These are great times to overhaul our education system, for example.

That increases productivity – and tax flows – in the years ahead.

It’s not a bad time, either, to upgrade our hospitals and to repair shaky bridges.

The Nobel prize winning economist,Â Paul Krugman, says the real risk, in times like these, is not spending too much, but spending too little, and allowing the bad times to linger.

The question of how the money is spent, of course, remains relevant.

We must get value for that money.

But raw dread of deficits can be counterproductive, too.

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Monday 1st December 2008

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High speed network gets off to a slow start

by Alan Thornhill

The Federal government’s high speed national broadband network is making a slow entrance.

The government had hoped to start building the network this year.

A start on construction is now likely to be delayed until March, at the earliest.

The government struck unexpected delays in getting the necessary legislation through parliament.
And the tender process, itself, was troubled.

Australia’s biggest carrier, Telstra, refused to accept the government’s demand that a separate entity be set up to operate the new network.

It did express an interest in undertaking the project but – in bureaucratic terms – its bid was non-conforming.

In ordinary circumstances, that would rule it out of contention.

But the circumstances, at present, are far from normal.

The government badly needs the new network, to fulfil an election promise.

And Telstra does have the muscle necessary to build it.

The government has also received bids from Optus, Acacia, Axia Transact and the Tasmanian government.

But the last two, in particular, are interested only in building parts of the proposed national network.

The government now has panels of experts reviewing the rival bids.

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Profile

Alan Thornhill is a parliamentary press gallery journalist. Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.

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