economic outlook Archives

Quarterly Economic Update: January-March 2024

9 April, 20244 April, 2024 Updated on4 April, 2024 Economy, Finance, Investing

The first quarter of 2024 saw the Government roll out considerable changes to the Stage 3 Tax Cuts, inflation continuing to slow but remaining stubbornly high across some areas, surging stock market highs and continuing pressures in the property sector. Government Overhauls Stage 3 Tax Cuts In January, the Labor government unveiled changes to the proposed stage 3 tax cuts, aimed at providing bigger tax cuts to middle Australia. The new changes, which passed the Senate to become law in February, retain the tax bracket that would have been scrapped under the original proposal, and adjust tax rates to benefit both lower and higher-income earners. The changes will take effect from July 1 and are summarised as follows: Taxable Income Bracket Tax rate New Tax Plan from July 1, 2024 Below $18,200 0% $18,200 to $45,000 16% $45,000 to $135,000 30% $135,000 to $190,000 37% Above $190,000 45% Original Stage 3 tax cuts Below $18,200 0% $18,200 to $45,000 19% $45,000 to $200,000 30% Above $200,000 45% Inflation continues to ease Inflation continues on a downward trend, with the RBA expecting it to return to the target range of 2-3 percent in 2025, and reach the midpoint in 2026. Service price inflation remains high despite goods price inflation decreasing, supported by continued excess demand and strong domestic cost pressures. The RBA expects the consumer price index (CPI) to come in at 3.3% by June, compared with 3.9% forecast three months ago. As a result, the board decided to leave the cash rate unchanged at 4.35 per cent at the first official meeting for the year.  Share Market Highs Global share markets have been breaking records this quarter, with the ASX200, S&P500, Eurozone and Japanese markets reaching record highs, helped by US inflation data coming in as expected, leaving the Fed on track to cut rates from mid-year. Whilst economic growth both locally and globally is forecast to slow, there is optimism in the market as inflation has started easing and is likely to continue falling, and central banks across the US, Canada and Europe are expected to start cutting rates in the coming months. Recession still looms as a risk, but it appears the economy may be moving toward a soft landing. Housing market continues to tighten The national vacancy rate fell to a new low of 0.7 per cent in February, highlighting the ongoing supply and demands challenges in rental properties across Australia, as a result of a construction sector under strain, rapid population growth from migration, and rising property prices. Whilst the government has put stricter measures on international students to try to ease demand pressures, supply continues to be an issue, with building approvals falling by 1 per cent in January, though multi-unit dwelling approvals increased by 19.5 per cent in the same period. Property prices continued to rise despite higher interest rates, inflation and cost of living concerns. The Home Value Index was up 0.6 per cent nationally in February, and showed an increase in all capital cities except Hobart. Labour market cooling Labour market conditions cooled over the December quarter 2023, with an ongoing shift away from full-time employment and growth in part-time jobs, and a decrease in recruitment activity. These trends are consistent with Treasury forecasts that growth will continue to ease and the unemployment rate will increase from 3.9 per cent in January to 4.2 per cent by June, and 4.3 per cent by the end of the year. Despite clear softening, labour market conditions remain tight, and many employers are experiencing challenges finding suitable workers to fill positions, while some shortage pressures remain evident. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Quarterly Economic Update: Oct – Dec 2023

10 January, 202410 January, 2024 Economy, Finance, Investing

Global growth is forecast to slow and remain below its historical average in 2024, reflective of tighter monetary policy in advanced economies, as well as a soft outlook for China. Australians can expect higher prices, higher interest rates and higher population growth, with economic growth and unemployment decreasing. Inflation continues to bite With a new Governor at the helm of the RBA, and inflation tracking down since its peak in the December quarter 2022, public sentiment hoped that rate rises would be paused. However, the RBA delivered another rate hike at the November 2023 meeting, bringing the official interest rate to 4.35% – the highest level since 2011. It is likely that an increase in the monthly CPI indicator was a key trigger for the RBA to raise rates, as the monthly indicator rose to 5.2 per cent in August, and then rose again to 5.6 per cent in the September data. However, the next monthly data point, for October (which came out after the November rate rise) had inflation decreasing to 4.9 per cent. Services inflation remains high and was the primary driver of stronger-than-expected underlying inflation in the September quarter. Interest rates – will they or won’t they? The RBA continues to be cautious about the inflation outlook for Australia for several reasons: high and sticky inflation in the services market, house prices recovering sooner than anticipated, a tight labour market and increasing population growth due to migration. A survey of 40 economists by the Australian Financial Review shows that the median forecast is that the RBA will start cutting rates in September 2024, whilst the bond market is projecting an easing of rates by mid-2024. The RBA will meet only eight times in 2024, reduced from 11, beginning in February – following an independent review ordered by the Treasury. Coupled with the RBA governor’s commitment to return inflation to the target range of 2-3%, more rate hikes may be on the cards. Holiday spending to remain flat A survey by Roy Morgan forecast shoppers to spend $66.8 billion during the pre-Christmas sales period, only up 0.1% from the same period in 2022, likely as a result of cost of living impacts. Sales spending for the Boxing Day period to December 31 was expected to be about $9 billion, including $3 billion on Boxing Day itself, as retailers prepared larger discounts than usual after a slow year. Hot Property House and unit prices grew steadily in 2023, with a national annual growth rate of 5.42% (6.54% in capital cities). The main drivers include the highest net overseas migration levels ever recorded, few vacant properties and stronger demand for established homes due to the construction industry facing capacity and cost issues. This growth forecast is expected to continue as most experts believe demand for housing will continue to outstrip supply. However, Australia’s cost of living increases and interest rate uncertainty will keep biting—leading to weaker price growth than previous years. The rental market remains in a critical shortage of available dwellings according to SQM Research. Due to the ongoing supply and demand imbalance, the market is expecting capital city rental increases of 7-10% for 2024, on top of an average 10% market increase in 2023. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Economic Update: October-December 2020

27 January, 202117 September, 2021 Updated on17 September, 2021 COVID-19, Economy, Investing

COVID-19 update Finally, some good news on the COVID-19 front: several vaccines have been rolled out in a number of countries. While a huge step forward in bringing the pandemic under control, it comes at a time when, globally, more people are being infected with the coronavirus, and more people are dying from it than at any previous point in the pandemic. There is a long way to go before victory can be declared. Meanwhile, Victoria squashed its second wave of COVID-19 infections, sparking a bounce in its economy as it enjoyed an extended period of no community spread of coronavirus. Unfortunately, the virus found a way back into both Victoria and NSW, kicking off fresh border closures and holiday chaos. The local view As was widely anticipated, the RBA cut the cash rate target by 0.15% to 0.1% in November. While welcomed by borrowers the cut put additional pressure on net savers by making it even harder to find low risk income yielding investments. Some are turning to peer-to-peer lending platforms, or even high yielding shares, which may partly explain the strong recent performance of the ASX. The official unemployment rate in November was 6.8%, the same as in August. However, using a different methodology, Roy Morgan calculated unemployment to be 11.9% in November, with a further 9.1% under-employed. While hardly cause for celebration, this was the first time since the pandemic began that both figures showed a month-on-month drop. The world stage The US election delivered a change of president, with markets responding positively as the result became clear. As the year came to a close, a sigh of relief was heard from millions as the US Congress approved a coronavirus relief package worth $US892 billion ($1.18 trillion). The package includes $US600 payments to most Americans. After years of negotiation and with just days to spare, the UK and EU managed to agree on a BREXIT trade deal. While it will keep the goods flowing between the UK and Europe, the agreement doesn’t cover the huge services sector. The markets It was a good quarter on the markets with the main global and US indices zooming past pre-COVID-19 levels. The MSCI All-Country World Equity Index rose 13.4%. The Australian market followed suit, with the S&P/ASX200 rising 13.3%. However, the Aussie market has yet to return to its February high. In the US the S&P500 rose 11% and tech stocks continued to attract buyers with the NASDAQ up 15.5%. The A$ gained strength rising 8.2% against the greenback. While partly due to a weakening of the US$, the A$ was also up 2% against the British Pound, 3.4% against the Euro and 5.6% against the Yen. The outlook Beyond direct health effects much of COVID-19’s economic impacts have been due to fear. It will take many months, but as vaccines are rolled out, and provided they bring the pandemic under control, much of that fear will dissipate. As it does economic activity should pick up strongly. Less likely to see any positive developments in the immediate future is the tense relationship between Australia and China. Australian coal miners, winemakers and barley growers will continue to bear the brunt of the dispute. Fortunately, China is still highly dependent on Australian iron ore, the price of which has soared by 78% since the start of the year. For current market conditions and further economic analysis, contact our financial advisers. We’re here to help! The information provided in this article is general in nature only and does not constitute personal financial advice.

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