What Happened to Australia's opening-up Boom?
- Clifford Bennett, Chief Economist at ACY
- 07.12.2021 11:30 am #stocks
Australia's Muted Economic Recovery
We continually warned that the Federal Treasurer and RBA were wildly optimistic about the recovery we would experience coming out of the recent lockdowns in NSW and Victoria. That without a similar construct of stimulus measures, and given the extended nature of these lockdowns, still on-going for around 10% of the adult population, we would see only a momentary spike in the data before quickly settling back to a below trend growth trajectory.
We have been bearish the Australian stock market all the way down, and it has been going down for four months now. Sideways for some six months. These are important observations for they show the quick money days are well behind us. Given the euphoria of the property market combined with near zero rates and a well behind the curve RBA, there is no doubting that caution over the property market is appropriate for 2022/25.
Moderation is happening all around the world and is likely to be the true new normal. Below trend growth, as in China and elsewhere, combined with rolling, even if diminished supply chain disruptions. This will begin to squeeze the price gouging, I mean freedom of pricing, that has dominated the world over the past 18 months. These pressures will persist however and a wages/prices spiral now appears inescapable. In fact, this situation is already in play in the USA with wages accelerating abruptly and businesses planning to pass those costs onto consumers. The situation will be further inflamed as rents rise.
Australia's path will be a little different. Persistent, higher and further encouraged inflation via freedom of pricing pressures, supply chain disruption, wages pressures (school teacher and rail strikes currently happening in NSW) and finally, a falling currency.
Australia's Services Still Contracting.
Even in the supposedly strong opening-up month of November, Australia's services sector was still in contraction. AIG Services PMI Index.
German Factory Orders Collapse.
German factory orders are down 15% in just the past three months.
Australia is deep in a crisis it seems to have no awareness of.
Australia has one of the highest taxation rates of workers in the world. Is easily among the most heavily regulated economies in the world with compliance and tax determination all sapping that which is created through the true creation of products and services.
As a trading nation the health of the global and particularly the Chinese economies is of paramount importance. Both are in jeopardy, and not in a short-term context. China is slowing permanently, while at the same time seeking to diversify away from Australian goods as quickly as possible.
The over-simplification of the Australian story to be merely one of the fight against Covid, is a diabolical political act that will leave us ill prepared to deal with our gaping and infected wounds of policy. Self-inflicted economic demise though neglect is this nation's greatest risk.
The RBA should today immediately stop all bond buying, been saying it for months, but they will probably speak of tapering? The RBA should today raise rates to 0.25% as a gentle warning and commencement of a smooth path higher. They will more likely remain stubborn and well, simply not intelligent.
All the while inflation will silently build.
