19 Jul 2017
Australian Economic Update – July 2017
The Australian economy is currently in a tough place, not helped by a hamstrung Reserve Bank of Australia and a Federal Government quibbling over matters which simply aren’t important, and that’s outside of their own internal petty wrangling.
And it’s about to get much tougher for the economy with local issues likely to be amplified by moves in policy by both US and European central banks.
The Negatives
- Extremely low wage growth, which is negative after inflation is taken into account
- Heavily indebted household with rising borrowing costs
- Rising inflation, but not good inflation – rising utility, healthcare, and education costs
- No more mining boom, and the housing construction boom coming to an end
- Eastern seaboard capital city house prices beginning to moderate
- Little to no discretionary spending, which will only be amplified by rising cost of capital globally
Positives
- Steady unemployment with relatively strong recent employment figures
- Deflation in household goods (eg. electronics, clothes), which is a positive for households
- Strong rise in household wealth following significant asset price growth over the last few years
- A Federal Government with plenty of capacity to borrowing and invest (but little desire to do so).
- Easy/loose monetary policy conditions with the RBA in no rush to raise very low rate settings
Currently, we think the negatives far outweigh the positives, but we’re not in the recession camp. Our line of thinking leads us to expectations of a prolonged period of sub-par economic growth, exacerbated by deleveraging households, squabbling government, and a central bank stuck between a rock and hard place.
Saving graces might include rising global economic growth and trade (rising tide), a much lower Aussie dollar, and a government willing to invest in productive industries and projects.
