“The
financial year ending in 24 days will be recorded as Australia’s worst since
1992, when the nation was struggling to recover from the 1991 recession.” [Contributing
Editor Michael Pascoe, The
New Daily, 5 June 2019]
With wages growth stagnant and a rise in unemployment the slowing economy became even slower last month as consumers kept their wallets closed, perhaps sensing the uncertainty behind Prime Minister Scott 'Liar from the Shire' Morrison's empty brag of a strong economy during the recent federal election campaign.
Australian Treasurer and Liberal MP for Kooyong Josh Frydenberg let the cat out of the bag when speaking with the banks ahead of the 4 June 2019 Reserve Bank official cash rate cut when he was variously reported as admitting the economy faced significant problems or domestic and international economic challenges. A few days later it was factors which weighed on the economy.
Here is how mainstream media and statisticians presented the situation........
On the basis of
the December
quarter numbers Australia is already in a recession on a per capita
basis. It has been there before in its record-setting period of economic
expansion, but there is a sense this time that it will be lucky to avoid a
contraction.
Slowing economic trends
are unlikely to have reversed in the first quarter of 2019. We haven’t seen
those March quarter numbers yet, but they are unlikely to be good, and may be
bad. Political uncertainties will not have helped.
What is in prospect is
the sort of outcome that will compound the concerning result in the second half
of 2018 when GDP slowed dramatically to 1 percent year-on-year.
If that slowdown becomes
entrenched, Australia will tip into a recession for the first time in a
generation with all the consequences that will follow. This includes an
indelible political context.
After six years in
office, the Coalition cannot reasonably blame its predecessor for tepid wages
growth, weak productivity gains, spiralling household debt, a doubling of net
government debt, and a depreciation of the Australian dollar by about 30 per
cent since a Tony Abbott-led government took office in 2013.
Interest rate cuts may
further weaken the dollar. This would be good for commodities exporters, bad
for consumers.
A booming property
sector fuelled by easy credit and lax Foreign Investment Review Board
strictures on Chinese
money flooding the market contributed to an illusion of wellbeing, the
so-called wealth effect: or, perhaps, better described as the “wealth
illusion’’.
Cuts to interest rates
may give the economy a bump. The removal of the spectre of a Labor government,
at odds with aspirational Australia, may encourage investment.
However, what should be
concerning the government, as it prepares for the first session of the 46th
parliament in early July, is that unemployment in April ticked up to 5.2 per
cent from 5 per cent, and underemployment jumped to 8.5 per cent.
Finally, this brings us
to Treasurer Josh Frydenberg’s pledge to bring the budget back into surplus in
2020-21 and begin paying down debt. If a recession bites that undertaking will
not be worth the budget papers on which it is written.
The question will then
become whether - and how quickly - the Morrison government can bring itself to
admit its budgetary projections, reaffirmed by a docile Treasury in its
pre-election economic and fiscal outlook (PEFO), misfired.
Rather than surpluses as
far the eye can see and tax cuts on the horizon it would be dealing with an
entirely different scenario.
What would be needed in
that case is real stimulus for capital works projects rather than short-term
fixes in the form of tax cuts that might be good for the sale of Harvey Norman
flat-screen televisions, but will do little for wages growth or the economy
overall.
Australian Bureau of Statistics (ABS), media
release, 4 June 2019:
Retail turnover fell 0.1
per cent in April
Australian retail turnover fell 0.1 per cent in April 2019, seasonally
adjusted, according to the latest Australian Bureau of Statistics (ABS) Retail
Trade figures.
This follows a rise of 0.3 per cent in March 2019.
"There were mixed results across industries" said Ben Faulkner, ABS
Director of Quarterly Economy Wide Surveys, "with falls in Household goods
retailing (-0.9 per cent), Cafes, restaurant and takeaway food services (-0.7
per cent), and Clothing, footwear and personal accessory retailing (-1.2 per
cent), which were offset by rises in Other retailing (0.8 per cent),
Department stores (1.8 per cent), and Food retailing (0.2 per cent)."
In seasonally adjusted terms, there were falls in New South Wales (-0.4 per cent),
Victoria (-0.4 per cent), the Northern Territory (-0.5 per cent), and the
Australian Capital Territory (-0.2 per cent). There were rises in Queensland
(0.7 per cent), South Australia (0.6 per cent), Western Australia (0.1 per
cent), and Tasmania (0.3 per cent).
The trend estimate for Australian retail turnover rose 0.2 per cent in April
2019, following a 0.2 per cent rise in March 2019. Compared to April 2018, the
trend estimate rose 2.9 per cent.
Online retail turnover contributed 5.7 per cent to total retail turnover in
original terms in April 2019, which was unchanged from March 2019. In
April 2018, online retail turnover contributed 5.4 per cent to total retail.
More detailed
industry analysis and further information on the statistical methodology is
available in Retail
Trade, Australia (cat no. 8501.0).
Statement by Philip
Lowe, Governor: Monetary Policy Decision
At its meeting today,
the Board decided to lower the cash rate by 25 basis points to
1.25 per cent. The Board took this decision to support employment
growth and provide greater confidence that inflation will be consistent with
the medium-term target.
The outlook for the
global economy remains reasonable, although the downside risks stemming from
the trade disputes have increased. Growth in international trade remains weak
and the increased uncertainty is affecting investment intentions in a number of
countries. In China, the authorities have taken steps to support the economy,
while addressing risks in the financial system. In most advanced economies,
inflation remains subdued, unemployment rates are low and wages growth has
picked up.
Global financial conditions
remain accommodative. Long-term bond yields and risk premiums are low. In
Australia, long-term bond yields are at historically low levels. Bank funding
costs have also declined further, with money-market spreads having fully
reversed the increases that took place last year. The Australian dollar has
depreciated a little over the past few months and is at the low end of its
narrow range of recent times.
The central scenario
remains for the Australian economy to grow by around 2¾ per cent in
2019 and 2020. This outlook is supported by increased investment in
infrastructure and a pick-up in activity in the resources sector, partly in
response to an increase in the prices of Australia's exports. The main domestic
uncertainty continues to be the outlook for household consumption, which is
being affected by a protracted period of low income growth and declining
housing prices. Some pick-up in growth in household disposable income is
expected and this should support consumption.
Employment growth has
been strong over the past year, labour force participation has been increasing,
the vacancy rate remains high and there are reports of skills shortages in some
areas. Despite these developments, there has been little further inroads into
the spare capacity in the labour market of late. The unemployment rate had been
steady at around 5 per cent for some months, but ticked up to
5.2 per cent in April. The strong employment growth over the past
year or so has led to a pick-up in wages growth in the private sector, although
overall wages growth remains low. A further gradual lift in wages growth is
expected and this would be a welcome development. Taken together, these labour
market outcomes suggest that the Australian economy can sustain a lower rate of
unemployment.
The recent inflation
outcomes have been lower than expected and suggest subdued inflationary
pressures across much of the economy. Inflation is still however anticipated to
pick up, and will be boosted in the June quarter by increases in petrol prices.
The central scenario remains for underlying inflation to be
1¾ per cent this year, 2 per cent in 2020 and a little
higher after that.
The adjustment in
established housing markets is continuing, after the earlier large run-up in
prices in some cities. Conditions remain soft, although in some markets the
rate of price decline has slowed and auction clearance rates have increased.
Growth in housing credit has also stabilised recently. Credit conditions have
been tightened and the demand for credit by investors has been subdued for some
time. Mortgage rates remain low and there is strong competition for borrowers
of high credit quality.
Today's decision to
lower the cash rate will help make further inroads into the spare capacity in
the economy. It will assist with faster progress in reducing unemployment and
achieve more assured progress towards the inflation target. The Board will
continue to monitor developments in the labour market closely and adjust
monetary policy to support sustainable growth in the economy and the
achievement of the inflation target over time.
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