{"id":18830,"date":"2019-09-06T20:53:30","date_gmt":"2019-09-06T20:53:30","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=18830"},"modified":"2019-09-06T20:55:17","modified_gmt":"2019-09-06T20:55:17","slug":"australia-the-elephant-in-the-room","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2019\/09\/06\/australia-the-elephant-in-the-room\/","title":{"rendered":"Australia: The elephant in the room"},"content":{"rendered":"

June quarter real GDP growth slowed to an annual 1.4%, the lowest since the 2008 global financial crisis (GFC). Major contributors to growth are household consumption, public demand and exports; while the biggest handbrake is investment.<\/p>\n

\"Australia:<\/p>\n

A quick look at the RBA chart shows that consumption is slowing but at a slower rate than disposable income. Households are dipping into savings to support consumption, with the savings ratio (savings\/disposable income) declining to near GFC lows.<\/p>\n

\"Australia:<\/p>\n

Gerard Minack warned of the danger that households will dramatically increase savings, and cut consumption, if employment prospects grow cloudy.<\/p>\n

That brings us back to investment. Low investment is a drag on employment growth.<\/p>\n

\"Australia:<\/p>\n

Low interest rates, on the other hand, are a tailwind at present. They seem to have shored up housing prices,<\/p>\n

\"Australia:<\/p>\n

And states are taking advantage of ultra-low interest rates to boost infrastructure spending.<\/p>\n

But low interest rates are a double-edged sword. Bank net interest margins are under pressure.<\/p>\n

\"Australia:<\/p>\n

And credit growth is plunging.<\/p>\n

\"Australia:<\/p>\n

The housing recovery will be short-lived if there is not a dramatic increase in loan approvals.<\/p>\n

\"Australia:<\/p>\n

AMP chief economist Shane Oliver believes that:<\/p>\n

“growth will remain soft and that the RBA will have to provide more stimulus \u2013 by taking the cash rate to around 0.5% and possibly consider unconventional monetary policy like quantitative easing. Ideally the latter should be combined with fiscal stimulus which would be fairer and more effective. While Australian growth is going through a rough patch with likely further to go, recession remains unlikely barring a significant global downturn.”<\/p><\/blockquote>\n

But that ignores two factors:<\/p>\n

    \n
  1. increased pressure on bank net interest margins from lower interest rates; and<\/li>\n
  2. the elephant in the room: China.<\/li>\n<\/ol>\n

    \"China:<\/p>\n

    China’s economic model is built on a shaky foundation and trade war with the US is likely to expose the flaws.<\/p>\n

    Chinese leaders are growing increasingly worried about the economy. Premier Li Keqiang said at this week’s State Council meeting:<\/p>\n

    \u201cThe current external environment is increasingly complex and grim.
    \n….Downward pressure on the domestic economy has increased.\u201d
    \n(Trivium<\/a>)<\/p><\/blockquote>\n

    \"Twitter:<\/a><\/p>\n

    BEIJING, Sept. 5 (Xinhua) — Chinese and U.S. chief trade negotiators agreed on Thursday to jointly take concrete actions to create favorable conditions for further consultations in October.<\/p>\n

    The agreement was reached in a phone conversation Chinese Vice Premier Liu He, also a member of the Political Bureau of the Communist Party of China Central Committee and chief of the Chinese side of the China-U.S. comprehensive economic dialogue, held upon invitation with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. (Xinhua<\/a>)<\/p><\/blockquote>\n

    …Extend and pretend. Neither side wants a full-blown trade war. But they are miles away from an agreement.<\/p>\n","protected":false},"excerpt":{"rendered":"

    June quarter real GDP growth slowed to an annual 1.4%, the lowest since the 2008 global financial crisis (GFC). Major contributors to growth are household consumption, public demand and exports; while the biggest handbrake is investment. A quick look at the RBA chart shows that consumption is slowing but at a slower rate than disposable … <\/p>\n

    Continue reading “Australia: The elephant in the room”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[40,31,3761,10],"tags":[381,663,800,881,1524,1732,2439,3042],"class_list":["post-18830","post","type-post","status-publish","format-standard","hentry","category-australia-nz-countries-regions","category-the-fed-banks-interest-rates","category-gdp-and-activity","category-housing-economy","tag-banks","tag-china","tag-consumption","tag-credit-growth","tag-gdp","tag-housing","tag-net-interest-margins","tag-savings"],"yoast_head":"\nAustralia: The elephant in the room - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Australia: The elephant in the room - the patient investor\" \/>\n<meta property=\"og:description\" content=\"June quarter real GDP growth slowed to an annual 1.4%, the lowest since the 2008 global financial crisis (GFC). 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Housing prices are recovering despite high levels of mortgage stress in the outer\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":19282,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/10\/19\/asx-and-3-headwinds\/","url_meta":{"origin":18830,"position":1},"title":"ASX and 3 headwinds","author":"Colin Twiggs","date":"October 19, 2019","format":false,"excerpt":"Despite recent strong performance, investor enthusiasm may be cooling, with the Australian economy facing three headwinds. Declining Household Spending Household income growth is faltering and weighing down consumption. Household spending would have fallen even further, dragging the economy into recession, if households were not digging into savings to maintain their\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":16340,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/06\/09\/12-charts-on-the-australian-economy\/","url_meta":{"origin":18830,"position":2},"title":"12 Charts on the Australian economy","author":"Colin Twiggs","date":"June 9, 2018","format":false,"excerpt":"Australian GDP grew at a robust 3.1% for the year ended 31 March 2018 but a look at the broader economy shows little to cheer about. Wages growth is slowing, with the Wage Price Index falling sharply. Falling growth in disposable income is holding back consumption (e.g. retail spending) and\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":17022,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/09\/10\/australian-households-are-spending-more-than-they-are-earning-abc\/","url_meta":{"origin":18830,"position":3},"title":"Australian households are spending more than they are earning | ABC","author":"Colin Twiggs","date":"September 10, 2018","format":false,"excerpt":"Interesting chart from Stephen Letts at the ABC: Household consumption is growing at a faster rate than disposable income, with savings rates (net savings \/ disposable income) falling. This is clearly unsustainable. Savings rates, which include compulsory super contributions, fell to just 1.0% in Q2, with savings outside of super\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":15672,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/08\/04\/australia-housing-incomes-growth\/","url_meta":{"origin":18830,"position":4},"title":"Australia: Housing, Incomes & Growth","author":"ColinTwiggs","date":"August 4, 2017","format":false,"excerpt":"A quick snapshot of the Australian economy from the latest RBA chart pack. Disposable income growth has declined to almost zero and consumption is likely to follow. Else Savings will be depleted. Residential building approvals are slowing, most noticeably in apartments, reflecting an oversupply. Housing loan approvals for owner-occupiers are\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":47367,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/01\/18\/australian-households-feel-the-pinch\/","url_meta":{"origin":18830,"position":5},"title":"Australian households feel the pinch","author":"Colin Twiggs","date":"January 18, 2024","format":false,"excerpt":"Household disposable income (blue below) is contracting at the fastest rate in more than thirty years. Consumption growth (orange) is now close to zero and likely to fall further as savings are depleted. Fiscal drag -- caused by inflation pushing households into higher tax brackets -- has caused a sharp\u2026","rel":"","context":"In "Australia & NZ"","block_context":{"text":"Australia & NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"Household Income","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/household-income-and-consumption.gif?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/household-income-and-consumption.gif?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/household-income-and-consumption.gif?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18830","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=18830"}],"version-history":[{"count":4,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18830\/revisions"}],"predecessor-version":[{"id":18835,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18830\/revisions\/18835"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=18830"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=18830"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=18830"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}