by Alan Thornhill
Watch the Chinese consumer closely.
That’s the message John Fraser, the Secretary to the Treasury, gave to a Fixed Income Forum in Tokyo today.
And he wasn’t modest about it.
He said Chinese consumers could boost – or weaken – the Australian economy.
But his message was essentially positive.
“Australia is entering its 26th year of continuous economic growth,” Mr Fraser said.
“We did not fall into recession in the aftermath of the global financial crisis of 2008, unlike many economies.
“ And real GDP is growing by 3.3 per cent per annum, faster than every country in the G7,” he added.
So what does the Chinese consumer have to do with all this?
Well, Mr Fraser has a few words for the sceptics, on that issue.
“ Indeed, 8 out of Australia’s top 10 trade partners are in Asia,” he said.
Mr Fraser also noted that with the mining boom now well past its peak, lower levels of of mining investment have already become “a significant drag” on our economy.
And worse is to come.
“ Mining investment is expected to fall by 25 per cent in 2016-17 and a further 14 per cent in 2017-18,” Mr Fraser said.
But he added: “as this detraction eases it is expected that investment in other areas of the economy will pick up, despite uncertainty over the exact pace and timing of this recovery.”
This is where – hopefully – the Chinese consumer – or tourist – comes in.
Or, as Mr Fraser said: “of particular importance – for Australia and the world – are the implications of the transition of the Chinese economy towards a more consumer-driven growth model from its present reliance on investment.’
“ Sustainable growth in China is in our interest and China’s economic transition will present opportunities for Australia.”
“ However, this process is unlikely to be smooth and there is a tension between policies to support short-term growth and the structural reforms required to re-balance the economy.”
Mr Fraser added: “the potential for this transition to lead to a greater-than-expected slowdown in the Chinese economy remains a key risk to Australia, the region and the global economy.”
“We are leveraged into the Chinese economy through many channels,” Mr Fraser said.
by Alan Thornhill
The Federal government is expecting no more than moderate economic growth in the short to medium term.
But its economists, like those in the private sector, have been looking – with some interest – at the higher than expected prices Australian miners have beeen receiving for their coal, over recent times.
As well they might.
For if the higher prices last, government revenues will increase, and the job of getting the Federal budget back into order will become much easier.
However, no-one is singing in the basement of the Federal Treasury, just yet.
Economists, working for the National Australia Bank, have also been studying this situation very closely.
And, in an an assessment published last week, they concluded that Australians can still look forward to moderate economic growth – and possibly some further rate cuts.
However there are also some risks in sight.
They said their real forecasts for economic growth ( GDP) “are largely unchanged’.
They have been left at 3.0 per cent in 2016, easing to 2.8 per cent in 2017 and 2.6 per cent in 2018.
But they added: “the unexpectedly high settlement for Q4 coking coal prices however will provide a boost to Australia’s terms of trade, nominal GDP and government revenues.
They were not overwhelmed by those higher prices just yet, though.
“…this is unlikely to be sustained,” they said.
“And we retain our view that the recent surge in coal prices reflects short-term supply constraints and government initiatives offshore which will not continue,” they added.
So the real question now is just how long these higher prices will last.
How long will the surge be sustained?
Well, at least, we might say that Australia’s chances are looking better than they have for some time.
by Alan Thornhill
Retail sales were flat in July, according to figures the Bureau of Statistics published today.
The bureau also reported that new private capital spending continued to fall sharply in the June quarter.
But it said and that the number of working days lost through strikes – and other industrial disputes – rose over the past year.
The bureau said retail turnover did not change in July, although it had risen by 0.1 per cent in June.
It made this comparison on seasonally adjusted figures.
On the same basis, there were rises in food retailing (0.7 per cent), cafes, restaurants and takeaway food services (1.2 per cent), and other retailing (0.2 per cent).
Sales of clothing, footwear and personal accessories also rose by 0.3 per cent.
However department store sales fell during the month.
The bureau also said that, in seasonally adjusted terms, retail sales rose by 0.5 per cent in Queensland, South Australia and Tasmania while sales in WA rose by 0.3 per cent and those in the ACT increased by 1.2 per cent.
Sales in the Northern Territory rose by 0.4 per cent.
However these rises were offset by falls of 0.6 per cent in Victoria and 0.2 per cent in NSW.
The bureau also noted that private new capital spending fell by 5.4 per cent in the June quarter of this year and dropped 17.4 per cent from the level seen in the same quarter of last year.
These falls are generally associated with the end of the mining boom.
The bureau also noted that Australia lost 100.7 thousand working days through strikes, in the 12 months to the end of June.
That was up from 76.8 thousand working days in the previous 12 months.
by Alan Thornhill
A sharp fall in the value of engineering work saw the total amount spent on construction in Australia fall significantly in the June quarter.
The overall fall – of 3.7 per cent – was driven by the collapse of the mining boom according to preliminary, seasonally adjusted figures, which the Bureau of Statistics published today.
The Bureau also noted that the value of engineering work done fell by 9 per cent in the June quarter.
The overall value of construction work done, in the June quarter of this year was 10.6 per cent below that of the same quarter 12 months earlier.
And the value of engineering construction alone fell by 24.9 per cent over the same time.
Once again, the collapse of the mining boom was largely to blame for these developments.
However the building industry did better.
The Bureau’s figures also show the value of residential building work done rising by 0.8 per cent in the June quarter and 9.4 per cent over the year.
But while the value of non residential building work rose by 2.1 per cent in the quarter, it rose by just 0.4 per cent over the year.
by Alan Thornhill
The Federal government will haul Australia’s banks before a powerful parliamentary committee as it seeks to persuade them to pass on the Reserve Bank’s latest interest rate cut in full.
The Prime Minister, Malcolm Turnbull and his Treasurer, Scott Morrison, made the announcement in a joint statement today.
Labor might well have gone further.
It promised a royal commission into the behavior of Australia’s banks, before last month’s Federal elections.
Mr Turnbull said that in challenging economic times globally, it is important that Australians retain faith in our financial institutions and the decisions they are taking.
“The Australian economy depends critically on the performance and strength of our banking and financial system,” Mr Turnbull said.
” Banks operate under a social licence and have responsibilities to the Australian public.”
He said they would be asked, particularly about several matters.when they appear before the House of Representatives Economics Committee.
In particular the banks would be required to explain:
- International economic and financial market developments and how these are affecting Australia
- Developments in prudential regulation, including capital requirements, and how these are affecting the policies of Australian banks
- The costs of funds, impacts on margins and the basis for bank interest rate pricing decisions
- How individual banks and the banking industry as a whole are responding to issues previously raised in Parliamentary inquiries through their package of reforms announced in April 2016
- Bank perspectives on the performance of the Australian economy, including strengths and risks.
The appearance by the banks will ensure they have the important opportunity to transparently account for their decision making and how they balance the needs of borrowers, savers, shareholders and the wider community, Mr Turnbull said.
The initial response from Australia’s banks was cautious.
Andrew Thorburn, the National Australia Bank’s Chief Executive Officer, said for example that his bank is looking forward to the dialogue around “how we balance” the needs of different stakeholders.
He said it is also anticipating “outlining the full cost of being an unquestionably strong bank and bringing further insight to the topic of how we set our interest rates.
“I am proud to be a banker,” he added.
” It has always required carefully thought through decisions,” he added.
“But the focus has been on serving the many people who rely on us to get these decisions right. ”
by Alan Thornhill
By Alan Thornhill
Twice this year, Glenn Stevens has done something that central bankers don’t like doing.
That is cutting interest rates to previously unprecedented levels
That happened first in May.
Then – again – from Wednesday.
Both time rates were cut by 25 basis points
The reason Reserve bank chiefs, like Glenn Steven, don’t like taking this step is simple.
But not, necessarily, obvious.
After all, young home buyers will generally welcome the relief they will get in their home loan repayments, when their banks pass, at least some of the benefit they receive on to them.
If that’s all there was to it, Mr Stevens would, undoubtedly be among the most popular men in the country right now.
But although he is, by all accounts, is a fine fellow, things aren’t as simple as that.
What about those probably somewhat older people, we might call the Savers, who have been relying on a little interest income, perhaps through their superannuation accounts, to help them pay their grocery bills in retirement.
There is another thing, too, that can keep central bankers awake at night, when interest rates fall to unprecedented levels, on their watch.
That’s walking down a dark path, on a moonless night.
Who knows what might go wrong?
by Alan Thornhill
The Reserve Bank today cut its cash rate by 25 basis points, to its lowest level ever, just 1.5 cent.
Explaining the decision, the bank’s Governor, Glenn Stevens said: “the global economy is continuing to grow, at a lower than average pace.
“Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies.
“Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China’s growth appears to be moderating, “ Mr Stevens said.
He noted that: “commodity prices are above recent lows.”
However he added: “…this follows very substantial declines over the past couple of years.
“Australia’s terms of trade remain much lower than they had been in recent years.
“Financial markets have continued to function effectively.
Mr Stevens said: ” Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative.
“In Australia, recent data suggests that overall growth is continuing at a moderate pace, despite a very large decline in business investment,” he added.
“Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend.
“Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term.
“Recent data confirm that inflation remains quite low.
“Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
“Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time,” Mr Stevens said.
The Bureau of Statistics reported that Australia’s inflation rate, on the Consumer Price Index, stood at just 1 per cent in the 12 months to the end of June.
That is well below the bank’s target range – of 2 to 3 per cent inflation – over the course of a business cycle.
by Alan Thornhill
Australia’s housing markets – and its economy – presented distinctly mixed pictures today, as member of the Reserve Bank board met to review interest rates.
Some economists expect the board to cut the bank’s marker interest rates by another 25 basis points today, taking it to a new low point of 1.5 per cent.
However, the late advice they received today, shows that their choice will not be easy.
The Housing Industry Association, for example, reported that new home sales had bounced back in June.
It’s Chief Economist, Dr Harley Dale conceded that“The overall trend, reflected in a report his association published today “is still one of modest decline for New Home Sales.
However he added that “…a bounce of 8.2 per cent in June 2016 highlights the resilience of the national new home building sector.”
“The overall profile of HIA New Home Sales is signalling an orderly correction to national new home construction in the short term, as are other leading housing indicators,” Dr Dale said.
Meanwhile Corelogic, which studies property prices and rents, reported that while capital city dwelling values had reached a record high in July, rental yields had slipped to a record low.
The firm’s research head, Tim Lawless, said: “the recent moderation in the rate of capital gains should be viewed as a positive sign that growth in dwelling values may be returning to more sustainable levels.
“However, the growth trend rate is still tracking considerably faster than income growth resulting in a deterioration of housing affordability.” He added.
HIA New Home Sales bounce back in June.
The HIA New Home Sales Report, a survey of Australia’s largest volume builders, shows that total new home sales ended 2015/16 on a higher note, said the Housing Industry Association – the voice of Australia’s residential building industry.
“The overall trend is still one of modest decline for New Home Sales, but a bounce of 8.2 per cent in June 2016 highlights the resilience of the national new home building sector,” commented HIA Chief Economist, Dr Harley Dale.
“The overall profile of HIA New Home Sales is signaling an orderly correction to national new home construction in the short term, as are other leading housing indicators,” he noted Harley Dale.
“Below the national surface, the large geographical divergences between state housing markets have been a prominent feature of the current cycle – that will continue.
The New Home Sales series highlights this fact.
Comparing the June quarter this year to the same period last year, detached house sales are down very sharply in South Australia (-21.4 per cent) and in Western Australia (-27.5 per cent), yet sales are up by 17.0 per cent in Victoria and by 7.1 per cent in Queensland. New South Wales rounds off the detached house coverage provided by the New Home Sales report and sales are down by 7.3 per cent on an annual basis.”
The sale of detached houses bounced back by 7.2 per cent in the month of June 2016. ‘
Multi-unit’ sales continued their recent recovery, growing by 11.5 per cent after a lift of 4.9 per cent in May. In the month of June 2016 detached house sales increased in all five mainland states with the largest increases occurring in Queensland (+14.9 per cent) and WA (+9.1 per cent).
Detached house sales increased by 7.5 per cent in NSW, 3.7 per cent in South Australia, and 2.2 per cent in Victoria.
Business confidence seems set to improve,
The latest Dun and Bradstreet business expectations survey, which was also published today, showed that Business expectations for sales, profits and employment have all bounced back for the three-month period to 31 December 2016.
The firm said this is surprising, in view of the British vote to leave the European Union.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
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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