Australian economy Archives

Quarterly Economic Update: July-September 2024

10 October, 202410 October, 2024 Economy, Finance, Investing

The Australian economy is still growing, but things are moving slower than usual, and the Reserve Bank of Australia (RBA) is being cautious with any changes to interest rates. They’re waiting for inflation to settle before taking further action. GDP Growth: Slowly But Surely While the economy is growing, it’s not as fast as we might like. Over the June quarter, the economy expanded by just 0.2%, with a 1.5% growth over the financial year. While these numbers sound positive, when you factor in Australia’s growing population, the story changes. For the sixth quarter in a row, GDP per capita (which looks at economic growth per person) has actually fallen. This shows that while Australia as a whole is growing, individuals may not feel that impact, especially with rising costs of living. Interest Rates: Holding Steady In September, the RBA decided to keep interest rates on hold at 4.35%, with the next decision due in November. While the US recently cut rates, Australia hasn’t followed suit, and it’s unlikely we’ll see any rate cuts before Christmas. The RBA is holding off to ensure inflation is well under control, despite it being much lower than the peak in 2022. Inflation: Better But Still Stubborn Annual inflation hit 3.8% in the June quarter, slightly up from March. However, there’s good news: underlying inflation (which strips out the more volatile price changes) has been falling for six straight quarters, down from its peak of 6.8% in late 2022. That said, prices for everyday goods remain high, and the overall cost of living is still squeezing households. Households Are Tightening Their Belts With cost-of-living pressures building, many Australians are cutting back on things like travel and entertainment. Even grocery spending is down, with households trimming their food budgets by 1%. However, spending on household goods, like furniture and appliances, increased by 4%, which propped up discretionary spending overall. Housing Market: Prices Still Going Up The property market remains strong, with housing values continuing to rise across Australia, although at a slower pace than before. CoreLogic reports that the national Home Value Index rose by 0.5% in August and a further 0.4% in September. Despite the cost of living, demand for property remains high, which is keeping prices elevated. Jobs Market: Still Tight, But Productivity Is Falling Australia’s unemployment rate remains low, sitting at 4.1% as of June, which is historically strong. However, total hours worked rose only slightly, and productivity—measured by GDP per hour worked—fell by 0.8%. While jobs remain secure for many Australians, people are working more for less output, and this could become a concern for long-term economic stability. Global Outlook: Uncertainty Ahead Globally, central banks are starting to look at easing monetary policies, but it’s still unclear how much they’ll ease up. Ongoing conflicts in the Middle East, Ukraine, and northern Africa are causing further instability. Meanwhile, Asia’s economy, a key trading partner for Australia, is expected to slow in 2024, which could have a knock-on effect on our own economic growth. What It All Means for You For everyday Australians, the combination of high interest rates, sticky inflation, and rising living costs means it’s more important than ever to manage your finances carefully. Mortgage holders won’t see relief from rate cuts soon, and households should continue to be mindful of their budgets, especially with the cost of essentials like groceries and petrol still fluctuating. If you’re feeling the pinch, now is a good time to seek professional advice and ensure you have a financial plan in place that helps you navigate these uncertain times. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Federal Government’s October 2022 Budget

9 November, 20229 November, 2022 Economy

A sudden uptick in the unemployment rate and slower economic growth combined with continued strong inflationary pressures are set to test the Australian economy during the next two years, according to the Federal Government’s 2022 October Budget. While record commodity prices and higher Government revenues have provided some relief reducing the annual budget deficit from $78 billion to $36.9 billion, the economic outlook remains uncertain. Government spending will continue to outpace revenue with Canberra doing little to address the long-term structural difficulties contained within the budget, despite trying to restrain spending in order to limit inflationary pressures within the economy. Perhaps more importantly is the very real possibility that the Australian economy could tip into recession next year with unemployment set to spike at 5.5 per cent while economic growth is expected to slow to just 1.5 per cent. Global political and economic uncertainty cast a long shadow over this budget, with the Government allocating some $1.4 billion in aid to Pacific nations during coming years – one of the few areas of higher Government spending. Despite keeping a tight hold on outlays, the budget centrepiece is a pledge to build 1 million new houses across the nation during the next five years, in an attempt to alleviate the country’s chronic housing and rental shortages. Nonetheless, households will continue to face their own tough budgetary realities with energy prices tipped to explode by more than 56 per cent in the two years ahead and real wages expected to continue to fall. Fearful of pushing domestic inflation even higher, the Budget contains no cash relief or direct subsidies for households facing increasing cost of living pressures from higher energy costs, higher fuel prices and higher interest rates. Medicines will become cheaper with the maximum general co-payment for medicines on the Pharmaceutical Benefits Scheme cut from $42.50 to $30 while an additional 17 million scripts will now receive Government subsidies to reduce their cost to patients. In the meantime, the Government has left the door open to review the much-debated 2024 income tax cuts, which are focused on providing tax relief for high income earners, particularly wage earners who have been adversely impacted by ‘bracket-creep”. The former Government’s much talked about commuter car park programs have been axed along with $1.7 billion slashed from various Government regional dams’ projects over the next four years and $4.6 billion over the next twelve years. While the Government has promised to spend $1 billion to create 180,000 additional fee-free TAFE and vocational training places, little has been done to support small business, emerging from two years of pandemic created restrictions and tough trading conditions. Nonetheless, the whole country will benefit from the Government’s commitment to move to a low carbon economy and its “Rewiring the Nation” program is set to improve energy transmission and connect new renewable energy projects to the nation’s electricity grid. $800 million has been set aside for Powering Australia, which plans to cut taxes on electric vehicles, invest in a national EV charging network and provide solar battery storage for up to 100,000 Australian homes. The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: April-June 2022

20 July, 202213 July, 2022 Updated on13 July, 2022 Economy

The price of a lowly head of lettuce has never been a recognised barometer of the strength of the Australian economy, that is until the media started reporting iceberg lettuces were selling for $10 a head. Suddenly, this has become a touchstone for everything that is wrong with the domestic economy. Prices are on the rise, spurred by higher transport costs and climate-based disruptions to the food chain, and the cost of living is surging. While some relief came with an unexpected 5.2 per cent increase in the basic wage, a move endorsed by the newly elected Federal Government, the prospect of similar inflation linked wage increases were dismissed as a ‘baby boomer fantasy’ by the trade union movement. Nonetheless, fears of further wage increases remain. So, all eyes are now focused on price rises with the most recent figures from the Australian Bureau of Statistics, pegging Australia’s rate of inflation at 5.1 per cent per annum. As bad as this might seem, it is still one of the lowest inflation rates among OECD nations, beaten only by Japan and Switzerland, at the bottom of the inflation table with 2.5 per cent, followed by Israel on 4.0 per cent, and Korea and France with 4.8 per cent. However, with inflation in the United States at 8.3 per cent and 7.8 per cent in the United Kingdom and both countries expecting this rate to go higher, the fear is Australia’s rate will start moving towards 7 per cent – a rate not seen in Australia for more than 20 years. Inflationary fears were made worse by the Governor of the Reserve Bank, Phil Lowe, calling for “front-loaded” interest rate hikes to avoid stagflation and warning against any super-sized wage claims. Just the mere mention of stagflation, something not seen since the seventies, has sent a shiver through the economy. This drove fears that home loan interest rates will also be pushed higher, causing more financial stress for those who have borrowed heavily and bought property at the recent record-high prices. While all four of the big banks are reporting current home loan arrears at record low levels and the majority of customers are tracking well ahead on their home loan repayments, fears still remain about the impact of higher interest rates. Property prices have already started to slide with industry analysts expecting the average prices in Melbourne and Sydney to fall by 10 per cent this calendar year and by potentially as much again next financial year. Meanwhile, the value of cryptocurrencies, which seems to magnify prevailing market sentiments, has collapsed across the board with values falling by as much as 70 per cent. The largest single cryptocurrency, Bitcoin, which was trading at just $US67.81 in July 06, 2013, soared as high as $US68,000 last November, is currently trading at $US20,200, with little market enthusiasm. While cryptocurrency was once touted as being something of a safe haven and a means of diversifying investment portfolios, it is fast becoming a magnifier of market excess and pessimistic economic sentiment. The information provided in this article is general in nature only and does not constitute personal financial advice.

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