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
The Reserve Bank admitted today that estimates of recent housing price growth had been “overstated.”
The admission, made in the minutes of the meeting of the bank’s board meeting on August 2 , is significant.
That’s because the bank has been relying on stronger than expected growth in the building and housing sectors to offset weaker performances in major resource export sectors, such as coal and iron ore.
However in today’s minutes the bank said: “data on housing price growth from CoreLogic, which had been discussed at previous meetings, indicated that housing prices had increased very strongly in several cities in April and May.”
But it added: “… new information had revealed that these growth rates were overstated.”
The bank said that had happened: “.. because of changes to CoreLogic’s methodology.”
And it added: “data from other sources indicated that housing price growth had instead remained moderate in the June quarter.
“Other information showed that, while auction clearance rates had recently picked up a little in Sydney and Melbourne, the number of auctions was lower than in the preceding year and the average number of days that properties were on the market had increased.
“Housing credit growth had been little changed in recent months and remained below that of a year earlier.
“Rent inflation had declined to its lowest level since the mid 1990s and the rental vacancy rate had drifted higher to be close to its long-run average.”
However, the minutes also noted that net exports are expected to make a positive contribution to output growth over the forecast period, supported by the earlier exchange rate depreciation and ramp-up in LNG production.
“ In contrast, mining investment was expected to fall further,” the bank said.
It said there had been some signs that non-mining business investment was rising in some parts of the economy.
But, overall, “it is still expected to remain subdued in the near term,” the bank’s notes said.
by Alan Thornhill
Social isolation rates are high in Australia, according to new research that the National Australia Bank published today.
The bank said less than two thirds (58 per cent) of Australians now feel connected to their local communities.
It said, too, that young women and labourers were among Australia’s most isolated people.
But older people, including widowed people and over 50s, were among those feeling the most connected.
These results showed up in a special report on Wellbeing and Importance of Community Connections.
The bank said networks play an important role in overall community wellbeing.
It also said that while there is little difference between the sense of community connection between men and women overall, there are “notable differences by age, education, work, and relationship status.”
“Just as our personal wellbeing appears to increase with age so too does our feeling of community connection,” the bank said.
“Widows, closely followed by over 50s (particularly women), married couples, Australians with a higher education and professional workers, not only report the highest level of personal wellbeing but they are also the most connected,” it added
“Similarly, there appears to be a relationship between low levels of personal wellbeing and weak community connections, with young women (18 to 29) and labourers the least connected groups.” ??The NAB Group’s Chief Economist, Alan Oster, said .
“The message is clear.
Those who feel more connected within their local communities typically have higher levels of personal wellbeing,” ??Mr Oster said.
He conceded that some of the isolation felt by younger people and labourers might due to age.
“But some may also be a by-product of modern living with a lesser degree of community connection due to frequency of job changes, increased globalisation and the associated rise in relocations and the rise of online rather than physical communities and networks” Mr Oster added.
He said too that both men and women believe that addressing safety and law and order issues would have the greatest impact on improving wellbeing, followed by housing affordability, local jobs and health services.
“While there is much that individuals can do themselves such as volunteering and getting to know their neighbours, there is also a clear role for government, community groups and business, particularly regarding issues such as safety, housing employment and health in order to improve the wellbeing of Australians,” he added.
by Alan Thornhill
With returns on interest investments at historic lows – and fresh doubts appearing about the future of residential investment, this might be worth some thought.
Especially in view of the results of the National Australia Bank’s latest Commercial Property Survey,which is for Q2 2016
It shows that: “sentiment in the retail commercial property market has risen to its highest level in over six years.”
However, the bank adds: “strong retail market confidence was not enough to offset the lower sentiment recorded across the office, industrial and CBD hotels sectors.
“ Overall, the NAB Commercial Property Index fell 7 points to +5 in the second quarter of this year,” it said.
“This was a strong quarter for capital growth in the retail property sector, with respondents expecting retail to grow 1.5 per cent in the next year.
“As a result, sentiment in the retail commercial property sector rose to its highest level since early 2010,” NAB Group Chief Economist Alan Oster said.
“However, sentiment from respondents was lower across all other sectors, particularly in CBD hotels which was the weakest sector overall .”
“Looking towards the future, confidence levels remain broadly unchanged over the next one to two years across all markets.”
Market sentiment remained strongest in NSW (+37) and Victoria (+28), likely driven by the continued non-mining recovery whilst sentiment fell heavily in SA/NT (-27
to -51) and, although still subdued, improved slightly in WA (up +4 to -48).
The Q2 Survey showed that one in two developers plan to start new works within the next six months.
“But developers have also reported further deterioration in their debt and equity funding situations.”
That is expected to continue over the next six months.
“This is coupled with respondents reporting the average pre-commitment percentage required for developments increased for the fifth straight quarter,” Mr Oster said.
The Bank said About 230 property professionals had participated in the Q2 Survey.
by Alan Thornhill
Lending for investment housing rose by 3.2 per cent last month, on seasonally adjusted figures published by the Bureau of Statistics today.
The Bureau’s figures show that almost $11.8 billion was made available, through fixed loans, for this purpose last month.
The Bureau also reported that there had been a 1.2 per cent rise, in commitments for owner occupied housing last month.
Loans for the construction of dwellings rose by 2.1 per cent in June, while lending for the purchase of established dwellings rose by 1 per cent.
Lending for the purchase of new dwellings rose by 2.7 per cent in June.
by Alan Thornhill
A new business survey shows that while the Australian economy is still strong, medium to longer term risks are becoming more apparent.
These are the conclusions the National Australia Bank’s Chief Economist, Alan Oster, reaches from the results of the bank’s latest monthly business survey.
The bank sid: “for a while now, the NAB Business Survey has provided a relatively consistent message on the health of the Australian economy.”
And it added: “It continues to show a steady recovery in non-mining activity, with the services sectors clearly leading the way.”
However Mr Oster added a warning.
He said: “there were some notable differences in business conditions across industries this month. “
“The largest deterioration was in mining, followed by big falls in transport and wholesale.”
“Retail saw the largest improvement, following a weak result last month.”
But Mr Oster said: “…the contribution from major industries suggests a relatively mixed bag.”
He said the service sectors continue to be the best performers.
“ Signs of a broadening recovery in recent months have again become more obscure following sharp deteriorations in transport and wholesale – although the recovery in retail conditions was encouraging.”
The bank said the economy could run into headwinds from 2017.
And it added: “these headwinds may require additional policy action to support growth, especially if the RBA hopes to see inflation return to within its target band.
“ Both global and domestic disinflationary pressures are expected to keep CPI inflation below the target band for an extended period.
And structural shifts in the economy and modest economic growth would leave the unemployment rate under pressure.
“To stabilise the unemployment rate (at around 5.5 per cent) we expect the RBA will feel the need to provide further medium term support through two more 25bp cuts in May and August 2017 (to a new low of 1 per cent).
“And thereafter raises the prospect of the RBA thinking about the use of non-conventional monetary policy measures,” it added.
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.
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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