Martin North – Digital Finance Analytics (DFA) Blog

The Australian Economy; Its Messy And Complicated!

Can the Australian economy be weak, and strong at the same time? Or which is it? This is an important question because the answer will determine the future policy direction of interest rates, and the well-being of ordinary Australians. So I am going to do a deep dive on this in the light of the latest employment and wage rise data from the ABS.

While The RBA has made inroads into getting inflation under control, at 3.5 per cent, underlying inflation still remains above the central bank’s 2 per cent to 3 per cent target band. And even though the jobs market has softened, it is still far stronger than almost any time since the 1970s as data out today shows.

Yet Consumers have cut back sharply as they try to cope with 13 interest rate rises by the RBA and this decline in spending has caused economic growth to grind to a halt. On an annual basis, the economy grew by just 1 per cent in the year to June, down from an average of 2.7 per cent over the past 20 years. Excluding the pandemic, that marks the slowest rate of growth since the 1990s recession. And household financial stress based on our analysis is at peak as we discussed in my live show this week.

So we have an economy driven into overdrive by high migration and big government spending, forcing interest rates to stay higher for longer, yet with a low unemployment rate and people working till they drop. None of this helps to improve productivity the share of the economic cake continues to shrink on an individual basis. And those in the rental sector or with a large mortgage are under the pump.

My point is, bad policy over a couple of decades have got us to this point, but unless we radically change direction, this Messy And Complicated journey will continue to the detriment of many ordinary Australians and businesses. There is no Goldilocks zone here.

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Prepare For A Higher Rate Plateau!

One of the themes which comes through in our household surveys is that many people are under financial pressure, but are holding out for interest rate cuts in the short term.

But America’s election outcome continues to reverberate across the globe.

Bond markets continue to push higher with the US 2 and 10 year moving up, a trend reflected on the Australian market too. With the 10 year up to 4.7% compared with 3.8% in the middle of September. The ASX 30 days cash rate futures is still trending down, but more slowly than recently.

Financial markets and economists have been consistently pushing back the timing of the first rate cut in Australia since 2022 because inflation has proved far more difficult to tame and the labour market has remained strong. Traders are now fully priced for a move in September next year.

But some reckon there is a much higher chance of no rate cut in 2025 that the market is pricing in.

The US dollar index, which measures the greenback against a basket of six currencies, climbed to a six-month high on Wednesday. The AUD was down to 65.25 cents against the USD.

A strong greenback is likely to stoke inflation in Australia because of higher prices of imported goods denominated in US dollars such as oil, complicating the RBA’s job to bring inflation down so that it can start lowering the cash rate.

While Trump’s policies will become more of a focus next year, for now, the RBA’s focal point is the Australian economy, where higher for longer is going to play out.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Property Markets Caught In Higher Rate Trap As Parents Help More To Buy!

We are at a significant point in the spring auction market as the prospect of early interest rate relief for home buyers becomes more uncertain in the months ahead, even though weekly clearance rates are so far holding steady, as overall property listings rise.

But within that less expensive property is shifting faster, driven by a further rise in those buying with the help of the family bank – with money from parents, grandparents or siblings, easing the purchase path, whilst other first time buyers are clubbing together to become joint owners of a new home, despite the potential risks.

More generally it’s another symptom of the broken housing market. If you want to learn more about this, and get the latest on our modelling, join us next Tuesday for my live stream at 8pm Sydney, where you can ask a question live. You can see the latest post code level analysis and we will also look at the broader trends.

This is a time for caution, given the rising levels of uncertainty, but that said, for many jumping from the rental sector to buying their own home could be equivalent to jumping from the frying pan into the fire in the current environment.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

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