ECONOMIC COMMENTARY It is nice to be parroted by a major international publication such as the Economist (link to Economist article on Australia) but we are not so sure about being parroted by a peacock (link to Michael Pascoe article on The Economist article). Just occasionally, the Bananas in Pyjamas economist, Michael Pascoe, happens across a topic of unusual merit and today he has tuned into the political and leadership void in Canberra as put under the spotlight in recent days by the venerable (yet occasionally holier than thou) London based publication, The Economist.
Without us venturing into the whole subject again, an outsider’s less biased observations can often cut through the myopia of self interest and mental laziness that comes from living inside the fishbowl. Whether it is not seeing the wood for the trees, the elephant in the room or the bleeding obvious, as a population we probably have become so inured to the lamentable standard of our federal politicians that we just accept it with the odd moan without actually rising to do anything about it. And that is the point of The Economist article. This is a time when we need to wake up a bit and look to the bigger picture of how to best handle the future and not allow ourselves to be endlessly bogged down in small target, fickle, populist politicking which ultimately only eats away at the wealth we have now while making the tough decisions even harder to progress the longer we put them off.
Economist B2.5 suggests perhaps The Hock ought to replace Mr Rabbit as Opposition Leader as a first step to taking the country forward, but we couldn’t disagree more vigorously even if paid. Alas, that is what you get when writing for a headline and a pay cheque. Media populist drivel hand in glove with political populist drivel. But enough of that and onto brighter things. The economy probably contracted last quarter. Well, at least this is the expected outcome of Q1 GDP data that will print on Wednesday, with a cross section of (mainly) bank economists believing a 0.1%-0.3% decline in economic activity will be seen. And while part of this anaemic economic picture can undeniably be put down to weather related hits to industry, agriculture, retail and mining in Queensland, WA and Victoria, economists have put the annual impact of those events at around 0.65% thus making the overall picture of annual GDP at around 1.9% a rather bleak one indeed. Added to this, quarterly business profit data released this afternoon dropped by 2% when a rise of 2% was anticipated. When combined with other recent underwhelming releases, this is not a happy little data set.
If we are in the midst of the greatest resources boom in decades, or centuries, or whatever, why is our economy only expanding at a rate of around 2.5% when you add lost activity to weather disasters back in? With so much above trend growth being driven by mining and resources, that surely means many parts of the economy are firmly in contraction mode. It is a proposition that we can attest to based on our dealings with SME’s, property investors and PAYG’s over the past six months since the RBA last raised rates and the banks followed with their own top up on home loans and no doubt all other forms of lending.
So, with house prices softer than The Hock’s paunch, new home sales slower than Julia’s drawl, retail sales going backwards as fast as American conservative Tea Party politics and Australian personal and business credit growth as negative as Tony Abbott’s PR agenda, the RBA must be in a truly confounded state. That is not to say Glenn Stevens will have his hand paused over the rate cut button, he’s far from that but when the broader economic pattern of the last 6-9 months is pulled together, there is little confidence and momentum there. Take away the mining boom and you have an economy barely treading water. The question then remains, are we drowning or waving? Without putting too pessimistic a hat on it, another rate rise will see us doing more of the drowning thing and while everyone goes on about the unemployment rate dropping further to below 4.5% as a cause for future strong expansion, we are expecting this to be back to 5.0% or more by the end of the year. We’d be more than happy to be proved wrong however. Our local money market jockeys are a fine bunch. They still anticipate rates rising in the next few months while simultaneously reining in their longer term outlook to the point where they can only see two or three net rate rises ahead with the Cash Rate possibly testing 5.50% at most between now and mid-2016. In the immortal words of Shrek, “Like that’s ever gonna happen!”
30 day rate = 4.83% (up 0.01%)
90 day rate = 5.04% (up 0.05%)
1-5 years rates = 5.21% – 5.63% (down by an average 0.05%)