Economic Performance

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EXPERT INSIGHT

Australia’s housing market recorded respectable growth over 2020 and with limited stock and strong demand, 2021 should see further price increases.

The winding back of Jobkeeper and Jobseeker may see temporary issues for tenants in some capital cities but the trend to relocate to the regional areas currently being experienced is likely to gain further momentum.

Traditionally there is a reduction in the number of house sales over the holiday period due to buyers going away for the festive period but due to the current restrictions people are taking advantage of the market conditions whilst they are unable to travel and looking to buy while they can. 
The property sector has been crucial to Australia’s economic performance, adding that Government stimulus measures and continued low interest rates have been, in part responsible for the resilient demand for residential property. 
Even though growth in new dwelling investment is unlikely in the 2020/21 fiscal year, given the lags between building approvals and construction activity, the forecast for dwelling investment has been revised from -4 percent in the Pre-election Economic and Fiscal Outlook to -3.5 per cent in MYEFO. 
With the possibility of a Federal election being called as early as August 2021 it was critical policy makers make measured commitments for property policy for all players in the real estate industry from first home buyers to investors. 
In May just prior to the 2019 election, house sales were the lowest in two decades across Australia which was largely attributed to election commitments from the Federal Opposition to abolish negative gearing and Capital Gains Tax (CGT) in their current form. 
Given the major role investors played and continue to play in providing housing over the pandemic, it is critical that in the run in to the election that policies from all sides of politics work for all players in real estate. 
Overall, the real estate industry looks forward to a positive year for the Australian property market with the promise of an Australian Covid-19 vaccination program allowing life to resume to a new normal. 
For customers, whatever your objective is for this year, whether you’re downsizing, investing or making a lifestyle move – talk to your local agent about your options for 2021.

Adrian Kelly is the president of the REIA.

 
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Overall, the real estate industry looks forward to a positive year for the Australian property market

Joel Robinson

2021 should see further house price increases: REIA president Adrian Kelly

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GUEST OBSERVER
There is no doubt the COVID-19 crisis has incurred widespread economic costs. There is understandable concern that stronger measures against the virus, from social distancing to full lockdowns, worsen its impact on economies.
As a result, there has been a tendency to consider the problem as a trade-off between health and economic costs.
This view, for example, has largely defined the approach of the US federal government. “I think we’ve learned that if you shut down the economy, you’re going to create more damage,” said US Treasury Secretary <a href="https://www.cnbc.com/2020/06/11/treasury-secretary-mnuchin-says-we-cant-shut-down-the-economy-again">Steve Mnuchin in June</a>, as the Trump administration resisted calls to decisively combat the nation’s second COVID wave.
But the notion of a trade-off is not supported by data from countries around the world. If anything, the opposite may be true.
Data from 45 nations
Let’s examine available data for 45 nations from the Organisation for Economic Co-operation and Development, using <a href="https://ourworldindata.org/coronavirus-data">COVID-19 data</a> and <a href="https://stats.oecd.org/index.aspx?queryid=350">economic indicators</a>.
The COVID-19 statistics we’ll focus on are deaths per million of population. No single indicator is perfect, and these rates don’t always reflect contextual factors that apply to specific countries, but this indicator allows us to draw a reasonably accurate global picture.
The economic indicators we’ll examine are among those most widely used for overall evaluations of national economic performance. Gross domestic product (GDP) per capita is an index of national wealth. Exports and imports measure a country’s international economic activity. Private consumption expenditure is an indicator of how an economy is travelling.
Effects on GDP per capita
Our first chart plots nations’ deaths per million from COVID-19 against the percentage change in per capita GDP during the second quarter of 2020.
The size of each data point shows the scale of deaths per million as of June 30, using a logarithmic, or “log”, scale – a way to display a very wide range of values in compact graphical form.
<hr>
<img src="https://images.theconversation.com/files/371240/original/file-20201125-16-y0lvcd.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""> Log(deaths per million) by percentage change in Q2 2020 GDP per capita.
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If suppressing the virus, thereby leading to fewer deaths per million, resulted in worse national economic downturns, then the “slope” in figure 1 would be positive. But the opposite is true, with the overall correlation being -0.412.
The two outliers are China, in the upper-left corner, with a positive change in GDP per capita, and India at the bottom. China imposed successful hard lockdowns and containment procedures that meant economic effects were limited. India imposed an early hard lockdown but its measures since have been far less effective. Removing both from our data leaves a correlation of -0.464.
Exports and imports
Our second chart shows the relationship between deaths per million and percentage change in exports.
If there was a clear trade-off between containing the virus and enabling international trade, we would see a positive relationship between the changes in exports and death-rates. Instead, there appears to be no relationship.
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<img src="https://images.theconversation.com/files/371241/original/file-20201125-15-75nr66.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">Log(deaths per million) by percentage change in Q2 2020 exports.
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Our third chart shows the relationship between deaths per million and percentage change in imports. As with exports, a trade-off would show in a positive relationship. But there is no evidence of such a relationship here either.
<hr>
<img src="https://images.theconversation.com/files/371248/original/file-20201125-15-x21mry.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">Log(deaths per million) by percentage change in Q2 2020 imports.
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Consumer spending
Our fourth chart shows the relationship between deaths per million and percentage change in private consumption expenditure. This complements the picture we get from imports and exports, by tracking consumer spending as an indicator of internal economic activity.
<hr>
<img src="https://images.theconversation.com/files/371247/original/file-20201125-23-1rglhox.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">Log(deaths per million) by percentage change in Q2 2020 private consumption.
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Again, no positive relationship. Instead, the overall negative relationship suggests those countries that succeeded (at least temporarily) in suppressing the virus were better off economically than those countries adopting a more laissez-faire approach.
National wealth
As a postscript to this brief investigation, let’s take a quick look at whether greater national wealth seems to have helped countries deal with the virus.
Our fifth and final chart plots cases per million (not deaths per million) against national GDP per capita.
<hr>
<img src="https://images.theconversation.com/files/371246/original/file-20201125-24-yiv8un.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">Log(GDP per capita) by log(cases per million).
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If wealthier countries were doing better at suppressing transmission, the relationship should be negative. Instead, the clusters by region suggest it’s a combination of culture and politics driving the effectiveness of nations’ responses (or lack thereof).
In fact, if we examine the largest cluster, of European countries (the green dots), the relationship between GDP per capita and case rates is positive (0.379) – the opposite of what we would expect.
 
It’s not a zero-sum game
The standard economic indicators reviewed here show, overall, countries that have contained the virus also tend to have had less severe economic impacts than those that haven’t.
No one should be misled into believing there is zero-sum choice between saving lives and saving the economy. That is a false dichotomy.
If there is anything to be learned regarding how to deal with future pandemics, it is that rapidly containing the pandemic may well lessen its economic impact.<img src="https://counter.theconversation.com/content/150533/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/michael-smithson-122837">Michael Smithson</a>, Professor, <a href="https://theconversation.com/institutions/australian-national-university-877">Australian National University</a>
This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/data-from-45-countries-show-containing-covid-vs-saving-the-economy-is-a-false-dichotomy-150533">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Data shows containing COVID vs saving the economy is a false dichotomy

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EXPERT OBSERVER
Australia’s record economic expansion is well into its 29th year.
The Australian economy grew by 0.4 per cent in the September quarter (consensus: +0.5 to +0.6 per cent) after growing by an upwardly-revised 0.6 per cent in the June quarter. Annual economic growth rose from 1.6 per cent to 1.7 per cent.
The biggest contribution to growth came from net exports (+0.3 percentage points); followed by government consumption (+0.2pp). Household consumption, ownership transfer costs, public investment and inventories all contributed +0.1pp. Detracting from growth were machinery &amp; equipment spending (-0.2pp) and dwellings (-0.1pp).
Real net national disposable income rose by 0.9 per cent in the September quarter to be up 4.8 per cent on the year. In nominal terms GDP increased by 1.1 per cent in the quarter and rose by 5.5 per cent over the year (annual average +4.5 per cent).
GDP per hours worked fell by 0.2 per cent in the September quarter to be down by 0.2 per cent on the year.
Thirteen of the 19 industry sectors expanded in the September quarter. Strongest contribution to growth was recorded by Healthcare and Social Assistance (+0.2 percentage points). Mining, Professional scientific and technical services, and Public administration and safety all added 0.1pp to GDP growth.
What does it all mean?
The Reserve Bank continues to emphasise that the economy has reached ‘a gentle turning point’. And a thorough review of the evidence supports this view. If Aussie consumers and businesses had more confidence, then the upturn would be more robust. Because incomes are growing faster than longer-term averages. But the seeds are there.
There is more evidence that consumers are saving the tax cuts at the same time that borrowers are responding to rate cuts by paying off debt at a faster rate. The household saving ratio has lifted to 4.8 per cent. The Government and Reserve Bank will need to re-assess, and determine what stimulus measures have the best chances of working in the current environment.
Over the last 28 years the economy has stared down numerous challenges. Indeed, the economy has a wonderful knack of responding to challenges or crises. If consumers forget how to spend, then exports or government spending have stepped up to the plate. And that is what we are seeing now. The Reserve Bank may be struggling to get inflation into the target band, but it continues to preside over a record-breaking economic expansion. It’s important to know that Australia is not alone in dealing with lower-than-normal price growth.
The gloomsters will be disappointed - again. The record economic expansion continues. And supported by tax cuts, low interest rates, housing recovery, competitive exchange rate and an infrastructure boom, the prospects remain positive. Commonwealth Bank Group economists support the Reserve Bank in forecasting 2.75 per cent economic growth in 2020. Growth of 2.25-2.50 per cent is expected in 2019/20.
There is some hand-wringing on productivity at present. And clearly Australia needs to do better with the country actually less productive than a year ago. But employment has been surging in the past few years. And it takes time for the new employees to be fully productive. As a result some patience is required on a lift in productivity to more ‘normal’ growth rates.
CRAIG JAMES  is the Chief Economist at CommSec
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cjames-5S2v74qSNK

Australia's record economic expansion rolls on: CommSec's Craig James

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GUEST OBSERVER
Vital Signs is a weekly economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies.
This week: the RBA cash rate, new car sales, building approvals and a worrying survey from UBS.
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Data released this week in Australia and the United States showed continued strength - or at least a lack of weakness - in consumer spending and unemployment.
New car sales in Australia - one measure of consumer sentiment and spending - <a href="https://www.urban.com.au/property-observer" target="_blank">declined slightly</a> in September from the year before. However, new car sales are still slightly ahead (0.2%) of last year’s numbers, on a yearly basis.
<a href="https://www.abs.gov.au/ausstats/abs%40.nsf/mediareleasesbyCatalogue/B4669E44CACBB1D5CA257E38001BDFC5?OpenDocument" target="_blank">Building approvals</a> also showed some mixed signs. The data shows overall approvals were up 0.4% in August. They had fallen 1.2% (on revised figures) in July. This was driven by apartment approvals, which were up 4.8%, while approvals for houses fell 0.6%. Year-on-year the news is still bleak. Approvals are down 15.5% on that basis - the 12th consecutive month they have fallen.
Perhaps developers don’t like to build into property bubbles, at least not forever.
In the US there was continued strong employment data, this time from payroll processing records. <a href="https://www.adpemploymentreport.com/2017/September/NER/NER-September-2017.aspx" target="_blank">ADP data</a> showed that US private-sector employers added 135,000 jobs in September. This was well above market forecasts that were subdued due to Hurricanes Harvey and Irma. It is now expected that the US unemployment rate will stay at the current very low 4.4% when official data is released.
However, the US Federal Reserve is still concerned about the low level of inflation, which has been persistently below its target range. Recently, Fed Chair Janet Yellen <a href="https://www.federalreserve.gov/newsevents/speech/yellen20170926a.htm">observed</a> that:
"My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation."
That was a very candid observation, but perhaps just as importantly, Yellen pointed out one important reason why it matters, <a href="https://www.federalreserve.gov/newsevents/speech/yellen20170926a.htm" target="_blank">saying</a>, 
"Sustained low inflation such as this is undesirable because, among other things, it generally leads to low settings of the federal funds rate in normal times, thereby providing less scope to ease monetary policy to fight recessions."
Meanwhile, in Australia the RBA left the official cash rate at 1.50% for the 13th (lucky for some?) consecutive meeting, with no rate rise in sight. RBA governor Philip Lowe said this week:
"Slow growth in real wages and high levels of household debt are likely to constrain growth in household spending."
This underlines the consistent bind that Lowe finds himself in. If he raises rates then he could put already debt riddled households under further pressure and crater spending - which accounts for roughly three-quarters of GDP - as those households try and adjust their balance sheets in the face of stagnant wages.
It has been a consistent theme of this column that both the Fed and RBA are in something of a bind - if for slightly different reasons. And both Yellen’s and Lowe’s remarks highlight this.
But the truly scary news this week was about Australian mortgages, with a survey from UBS saying that one-third of Australian borrowers don’t know their mortgages are interest only. Or as UBS put it:
We are concerned that it is likely that approximately one-third of borrowers who have taken out an IO mortgage have little understanding of the product or that their repayments will jump by between 30-60 per cent at the end of the IO period.
Now, economists don’t normally put much stock in surveys – we like “revealed preference” data. But this survey I will listen to.
This has US circa 2008 written all over it. Back then, many borrowers with adjustable-rate mortgages didn’t realise that the rates ratcheted up sharply after (typically) five years. When those rates did, and the borrowers couldn’t refinance because of market conditions, there was a meltdown that led to Bear Sterns and Lehman Brothers going to the wall. And then, of course, the whole financial crisis.
If UBS is right, Australia has a similar time-bomb ticking away. Maybe not quite as bad, but I don’t know. Remember <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/4corners/betting-on-the-house/8816724" target="_blank">ANZ chief executive Shayne Elliot on Four Corners</a> telling us how his mortgage book was super-diversified because they were all uncorrelated individual mortgages? Well, not if his book includes folks who don’t understand their loan contracts.
<img src="https://counter.theconversation.com/content/85035/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">Whatever APRA is doing right (or wrong), it can’t deal with loans that have already been written. That puts the RBA in a bind - and should make us all cautious about how robust the Australian economy really is.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics and PLuS Alliance Fellow, <a href="https://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-the-data-is-mixed-but-worrying-signs-from-mortgagees-85035" target="_blank">original article</a>.
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rh-YsoTT2xMuQ

The data is mixed but worrying signs from mortgages: Richard Holden

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<img src="https://counter.theconversation.edu.au/content/79760/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Investing in regional cities’ economic performance makes good sense.
Contrary to popular opinion, new research out today shows regional cities generate national economic growth and jobs at the same rate as big metropolitan cities. They are worthy of economic investment in their own right – not just on social and equity grounds.
However, for regional cities to capture their potential A$378 billion output to 2031, immediate action is needed. Success will see regional cities in 2031 produce twice as much as all the new economy industries produce in today’s metropolitan cities.
Drawing on lessons from the UK, the collaborative work by the Regional Australia Institute and the UK Centre for Cities spotlights criteria and data all Australian cities can use to help get themselves investment-ready. 
Build on individual strengths
The Regional Australia Institute’s latest work confirms that city population size does not determine economic performance. There is no significant statistical difference between the economic performance of Australia’s big five metro cities (Sydney, Melbourne, Brisbane, Perth and Adelaide) and its 31 regional cities in historical output, productivity and participation rates.
<a href="https://www.propertyobserver.com.au/images/2017/06/26/Screen%20Shot%202017-06-27%20at%209.17.29%20AM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/26/Screen%20Shot%202017-06-27%20at%209.17.29%20AM.png" alt="">
So, regional cities are as well positioned to create investment returns as their big five metro cousins. The same rules apply – investment that builds on existing city strengths and capabilities will produce returns. 
No two cities have the same strengths and capabilities. However, regional cities do fall into four economic performance groups – gaining, expanding, slipping, and slow and steady. This helps define the investment focus they might require. 
For example, the report finds Fraser Coast (Hervey Bay), Sunshine Coast-Noosa and Gold Coast are gaining cities. Their progress is fuelled by high population growth rates (around 2.7% annually from 2001 to 2013). But stimulating local businesses will deliver big job growth opportunities. 
 
Similarly, the expanding cities of Cairns, Central Coast and Toowoomba are forecast to have annual output growth of 3.2% to 3.9% until 2031, building on strong foundations of business entries. But they need to create more high-income jobs.
Geelong and Ballarat have low annual population growth rates of around 1.2% to 1.5%. They are classified as slow and steady cities. But their relatively high creative industries scores, coupled with robust rates of business entries, means they have great foundations for growth. They need to stimulate local businesses to deliver city growth. 
Get ready to deal
Regional cities remain great places to live. They often score more highly than larger cities on measures of wellbeing and social connection. 
But if there’s no shared vision, or local leaders can’t get along well enough to back a shared set of priorities, or debate is dominated by opinion in spite of evidence, local politics may win the day. Negotiations to secure substantial city investment will then likely fail.
The federal government’s Smart Cities Plan has identified City Deals as the vehicle for investment in regional cities. 
This collaborative, cross-portfolio, cross-jurisdictional investment mechanism needs all players working together (federal, state and local government), along with community, university and private sector partners. This leaves no place for dominant single interests at the table.
Clearly, the most organised regional cities ready to deal are those capable of getting collaborative regional leadership and strategic planning. 
For example, the G21 region in Victoria (including Greater Geelong, Queenscliffe, Surf Coast, Colac Otway and Golden Plains) has well-established credentials in this area. This has enabled the region to move quickly on City Deal negotiations. 
Moving past talk to be investment-ready
There’s $378 billion on the table, but Australia’s capacity to harness it will depend on achieving two key goals.
First, shifting the entrenched view that the smart money invests only in our big metro cities. This is wrong. Regional cities are just as well positioned to create investment returns as the big five metro centres. 
Second, regions need to get “investment-ready” for success. This means they need to be able to collaborate well enough to develop an informed set of shared priorities for investment, supported by evidence and linked to a clear growth strategy that builds on existing economic strengths and capabilities. They need to demonstrate their capacity to deliver.
While there has been much conjecture on the relevance and appropriateness of City Deals in Australia, it is mainly focused on big cities. But both big and small cities drive our national growth.
Leonie Pearson is Adjunct Associate, University of Canberra and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/leonie-pearson-151626" target="_blank">here</a>.
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