Tag: australia

Why wage growth and cost of living pressures look set to dominate Australia’s next election campaign

Why wage growth and cost of living pressures look set to dominate Australia’s next election campaign

Recently, and despite strong jobs growth in 2017, confidence levels remain subdued.
Weak wage growth and cost of living pressures may explain the recent disconnect, laying the potential battlegrounds for the next federal election.
From the Commonwealth Bank, it looks at the relationship between job security fears and consumer confidence based on data contained in the monthly Westpac-MI Australian consumer sentiment report.
Without the need for bringing in yet another focus group, it’s clear than when Australians are feeling more secure in their jobs, they tend to be a lot more confident.
A lower reading indicates more Australians think unemployment will fall in the year ahead.
As the theory goes, improved job security should lead to higher levels of confidence.
And if more Australians are feeling confident, they’ll be more inclined to spend.
However, even with slightly lower unemployment and strong employment growth, Australians still feel fairly subdued about themselves in early 2018.
“Not even recent sustained and robust jobs growth is boosting consumer spirits.” Peters says this could reflect ongoing pessimism surrounding the outlook for wage growth, potentially creating headwinds for the economy as consumers remain cautious when it comes to spending.
“These latest sentiment readings do not signal that a near-term substantive and sustained pickup in household spending is in the offing.” So even with strong jobs growth, economic growth could remain hamstrung by cost of living pressures.

Australia’s record hiring spree may be about to ramp up even more

Australia’s record hiring spree may be about to ramp up even more

The employment index in the NAB’s monthly business survey jumped to the highest level on record in February, suggesting that strong hiring levels will likely continue.
With strong levels of population growth, elevated hiring levels will need to continue to help lower unemployment and lift wage pressures.
Australian employment growth roared back to life in 2017, adding over 400,000 jobs, the most over a calendar year on record.
While he admits the employment index has overstated total employment growth in Australia over the last year, Alan Oster, Chief Economist at the NAB, says the latest reading suggests hiring levels will likely remain elevated in the months ahead.
“If the surge in the employment index is maintained you would expect to see jobs growth of around 27,000 per month,” he says.
As Oster points out, business conditions are currently the best they’ve ever been, according to survey respondents, with trading and profitability both at extremely elevated levels.
“In the breakdown, the strength in the employment index appears to owe almost entirely to stronger gains in the mining sector, and concentrated in Western Australia,” said Henry St John, Economist at JP Morgan.
“Capacity utilisation, which offers a better signal on the trajectory of the unemployment rate, edged lower to 82.5% from 82.7%.” Markets will get to decide themselves on the current strength of the labour market, and whether the recent hiring spree of 2017 will continue in the months ahead, with the ABS set to release Australia’s official jobs report for February on Thursday, March 22.
Many will be hoping that the NAB is right that progress has been made on lowering underutilisation in recent months, especially those workers in the private sector whose wages are barely keeping up with inflation.
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The power and the furoreA state election stirs a row about renewable energy in Australia

The power and the furoreA state election stirs a row about renewable energy in Australia

He is building solar and pumped-storage hydropower plants to revive a failed steelworks at Whyalla that he bought six months ago.
While the bigger eastern states still rely on coal for most of their electricity, South Australia now gets almost half of its power from wind and solar, the highest proportion in the country.
He says too much renewable power will lead to blackouts and push up power prices.
The federal renewables target, about two-thirds lower than South Australia’s, expires in 2020.
To Mr Weatherill, the drama meant the national electricity market was “failing”.
He launched a plan a year ago for South Australia to “take charge” of its own energy with A$550m ($430m) of public money, by building a gas-fired plant and financing green projects.
Solar Reserve, a Californian company, will start work on a solar thermal power plant at Port Augusta, near Whyalla, this year.
But South Australia has higher wholesale electricity prices than other states.
He wants to focus instead on improving transmission lines to the rest of the country.
Labor has been in power for 16 years (with Mr Weatherill as leader for just over six).

RBA governor Philip Lowe just told Australian businesses it’s a good time to start spending

RBA governor Philip Lowe just told Australian businesses it’s a good time to start spending

Philip Lowe says it’s up to the RBA, government and business to help foster investment in Australia He say stronger economic conditions in Australia should help support business investment Lowe repeated that the next move in Australia interest rates is still likely to be up Australian economic growth is likely to accelerate in the coming years, unemployment will probably fall and inflationary pressures will remain subdued, providing an ideal environment for Australian businesses to invest for the future.
That’s the overarching view to come from Philip Lowe’s speech to the AFR Business Summit in Sydney today, with the RBA governor suggesting that not only does the bank have a role in fostering investment, but also the government and business too.
“At the highest level we seek to be a source of stability and confidence,” Lowe said, referring to the RBA’s role in making businesses confident enough to invest.
“We expect stronger growth in 2018 than in 2017 and a further reduction in the unemployment rate.
“These developments should help support the climate for business investment.” Keeping with the theme of recent commentary from bank, he said that the risk of sharply higher interest rates for businesses in the period ahead appears remote.
“The government certainly has an important role to play, but so does business,” Lowe said.
“This is an important discussion to have as Australia does need to remain an attractive place for global capital to invest,” he said.
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Australia keeps interest rates unchanged

Australia keeps interest rates unchanged

SYDNEY–The Reserve Bank of Australia on Tuesday kept interest rates on hold for a 17th straight policy meeting and signaled it had no plans to adjust policy settings anytime soon.
The RBA maintained the official cash rate at a record low 1.5%, and pointed to soft wage growth and prospect of benign inflation in the coming months, as reasons for sticking to its current cautious course. “Notwithstanding the improving labor market, wage growth remains low.
This is likely to continue for a while yet,” RBA Gov.
Philip Lowe said in a statement accompanying the decision.
A gradual pick-up in inflation is, however, expected as the economy strengthens,” he added.
The dangerous mix of high debt and low wage growth has led the RBA to keep interest rates on hold since mid-2016.
The RBA has warned that reaching full employment, which is believed to be around 5%, might be difficult to achieve given high levels of underemployment.
Unemployment now sits at 5.5%.
Financial markets are pricing little risk that the RBA will raise interest rates before the end of the year.

Australia wages rise stronger than expected in 4Q

Australia wages rise stronger than expected in 4Q

SYDNEY–Australian wages growth came in stronger than expected in the fourth quarter of 2017, lending support to the idea that interest rates might be raised sooner than anticipated.
Wages rose 0.6% in the fourth quarter from the third quarter, and rose 2.1% over calendar 2017, the Australian Bureau of Statistics said Wednesday.
Economists expected a 0.5% rise over the quarter.
Still, the overall picture for wages is soft.
Years of depressed wage gains pose a risk to the outlook for consumer spending and GDP growth over time, something the Reserve Bank of Australia has warned of, adding that record household debt adds to the worry.
In a deluge of commentary since the start of the February, the RBA made it clear that without a recovery on the wages front, inflation might not return to its 2-3% target band.
Interest rates have already been held at record lows since mid-2016, with economists expecting the RBA could be sidelined into 2019 or longer.
However, Australia’s job market has been strong in the last year, adding more than 400,000 jobs in 2017 and lowering unemployment, raising the potential that eventually wages growth will heat up over time.
In the private sector, wages rose 0.4% in the fourth quarter, while public-sector wages rose 0.6%.
-Write to James Glynn at james.glynn@wsj.com

Bermuda captive licenses decline in 2017

Bermuda captive licenses decline in 2017

Bermuda had a total of 739 active captive insurer licenses at the end of 2017, a decline of 37 from the previous year.
Seventeen new captives were registered in 2017 compared to 13 in 2016 in the domicile, according to data released Wednesday by the Bermuda Monetary Authority.
“The majority of the new captives originated in the U.S., but they also came from Europe, Canada, Australia and Latin America,” Jeremy Cox, CEO of the authority, said in the statement.
The new captives cover a range of risks from Canadian conglomerates writing general liability and workers compensation to U.S. health care captives insuring nursing homes and medical stop loss cover for employees, according to the authority.
Bermuda had a total of 776 active captive licenses at the end of 2016, a decline from the 797 reported in 2015.
“Bermuda remains the world’s leader for captive formations,” Mr. Cox said in the statement.
“It’s not about the number of captives on the Bermuda register.
It’s about the quality of the business being conducted here.” Net premiums written by Bermuda’s captives totaled $54.7 billion in 2017 compared to $55.3 billion in 2016.

Why the RBA is unlikely to cut interest rates despite a slowdown in Australia’s housing market

Why the RBA is unlikely to cut interest rates despite a slowdown in Australia’s housing market

George Tharenou and Carlos Cacho, Economists at UBS, played devils advocate on that front earlier this month, pointing to the chart below to show that when house prices weakened by a similar amount in the past, it has almost always resulted in the RBA cutting official interest rates.
“In particular, previous downturns in house prices followed a succession of RBA rate increases, which pushed mortgage rates sharply higher.
The first looks at the relationship between annual house price growth and mortgage rates.
“The current downturn in house prices has not come after a tightening cycle.
In comparison, this next chart shows the relationship between the annual change in Australia’s unemployment rate to movements in the cash rate.
Australia’s unemployment rate has recently fallen to 5.4%, leaving it at the lowest level in close to five years, going someway to explaining why ANZ is forecasting that the RBA will lift the cash rate to 2% by the end of next year despite the slowdown in the housing market.
“In our view, a [housing] cycle driven by credit is likely to play out very differently from one driven by higher interest rates,” it says.
“Expecting the current housing cycle to play out like those caused by movements in interest rates, strikes us as likely to end in disappointment.” Indeed, outside of the recent price deceleration caused by credit rather than mortgage rates, ANZ points to a variety of other housing market indicators that suggest there’s little need for the RBA to cut rates.
“Our forecasts have nationwide house price inflation slowing to zero in 2018, but this also includes the impact of the two RBA rate hikes we expect in 2018.
If these don’t take place then we would expect less of a slowdown in housing inflation, probably to the low-to-mid single digits mentioned above.” ANZ says recent strength in Australian building approvals data, supporting the view that credit cycles play out differently from rate hike cycles, provides further evidence why RBA rate cuts are not required on this occasion.

Pier pressureCoal becomes a flashpoint in a close election in Australia

Pier pressureCoal becomes a flashpoint in a close election in Australia

Boom-bust cycles are hardly new for this northern coastal city in the state of Queensland.
Adani wants to build a railway 388km across the outback from the Galilee Basin to a terminal it owns at Abbot Point, north of Mackay.
From there, the coal will be shipped through the Great Barrier Reef, just offshore, to power stations in India.
Australia’s four biggest banks have demurred.
Geoffrey Cousins, a businessman and head of the Australian Conservation Foundation, a pressure group, says such protests have turned into the biggest environmental campaign “ever run in Australia”.
Adani claims that opening up the Galilee Basin will provide 10,000 direct and indirect jobs.
The Adani project loomed large in the campaign.
At first Ms Palaszczuk supported such a loan in order to create jobs.
But not everyone in the coal industry supports the loan: the Infrastructure Fund, co-owner of Australia’s biggest coal port at Newcastle in New South Wales, commissioned research on the impact of starting to export from the Galilee Basin.
Jonathan van Rooyen of the company says the federal government’s “billion-dollar support for the Galilee coal basin is not just playing state against state, it’s mate against mate.” Others question the scheme’s economic viability.

Here’s what economists are saying about Australia’s jobs report

Here’s what economists are saying about Australia’s jobs report

Australian employment growth undershot expectations in October, for the first time in a while.
Now that they’ve had time to look “under the hood” of the October report, it’s time to see what Australia’s economic community have made of it, particularly in terms on what it means on the outlook for wage growth, something that has reemerged as a concern following Australia’s weak Q3 wage price index report released earlier this week.
While monthly job gains are likely to slow from the recent rapid rate, our ANZ labour market indicator points to further falls in the unemployment rate.
Rising employment will support household income, but as yesterday’s weak Wage Price Index shows the reduction in spare capacity in the labour market is not yet feeding into stronger wages growth.
We think that employment growth has held up so well because wages growth is low.
But this low unemployment rate is not leading to higher wages because there is still some excess capacity in the labour market, with underemployment still elevated (people wanting to work more hours).
The recent run of Australian data has been largely negative so the strength in the employment data has been keeping pricing for a potential Reserve Bank rate hike alive.
But the lesson from overseas is that even if the unemployment rate in Australia were to fall further, wage growth still won’t rise much.
The Australian economy simply isn’t big enough to sustain employment growth of nearly 40,000 people a month as was the case between March and September this year.
Full-time employment continues to make strong gains — having accounted for almost 85% of employment growth over the past year — and hours worked across the economy is rising at its fastest pace in almost seven years.