The Economic Outlook

MyFavco · February 1st, 2010, 11:52 AM

Well now,.........

Now that the GFC is 'over' and Interest Rates have stopped falling, the Most Expensive House in AUS has been purchased, the speculation is over that House Prices won't go any lower, Oil Pricing is back to where it was always going to be, and of course the Financial Markets continue on their predictable course,......

all this makes me think it is time for a new thread......

a thread which captures news articles about our future macro economic projections. A thread that captures what the commentators suggest is the outlook for interest rate movements, the cost of housing, construction activity, inflation concerns, currency and GDP......

..... all the things about the future which should matter if you are about to get in to property, houses, buildings and/ or skyscrapers.

MyFavco · February 1st, 2010, 12:07 PM

This article is typical of the SMH, (good reading with a grain of salt)

Quote:

Originally Posted by tayser

Quote:

http://www.theage.com.au/business/rba-on-housing-told-you-so-20100201-n7x7.html?autostart=1

Michael Pascoe | RBA on housing: told you so | February 1, 2010

There's plenty happening this week, but nothing bigger than the RBA refuelling for another monetary mission.

In those very 1960s offices above Martin Place, there were Reserve Bank officials grimly clenching jaw muscles or perhaps sadly shaking heads as the Australian Bureau of Statistics this morning made it three out of three: the feared housing bubble has already started.

Governor Glenn “Biggles” Stevens could be weighing his response to the ABS numbers agreeing with last week’s two major private surveys: would it be indulgent to say “I told you so”, or better to just hit them with a more threatening “you were warned”?

Neither phrase will be necessary for the board meeting tomorrow, but the three levels of government could do with a lashing in the Governor’s statement that will be released after the meeting at 2.30pm.

I can’t recall any previous instance of our central bank giving so blunt a warning about the dangers of an asset bubble as that served up repeatedly by Biggles and his co-pilots last year. “Build more housing and build it fast,” the RBA more-or-less ordered. “Otherwise housing prices will take off and we’ll make you very sorry.”

It will end in tears as global central bank theology no longer states that asset bubbles should be left alone – they are to be pricked.

The three main housing price surveys – the ABS, RP Data-Rismark and Australian Property Monitors – differ in their methodology and can vary a bit in their findings, but it’s now three out of three that the bubble is inflating.

Today’s ABS score of the average established house in the state capitals jumping 5.2 per cent in the December quarter and 13.6 per cent over 2009 will do as an illustration. And remember that the best of the first-home buyer incentives were already washing out of the market in the December period. Annualise that December quarter figure if you dare.

Perversely, it’s the promise of a housing bubble that is sucking investors back into the market as well as panicking would-be owner-occupiers into taking the plunge. And it’s the reality of a housing bubble that will help force up interest rates.

Throw in today’s TD Securities-Melbourne Institute monthly inflation survey and the idea that the current cash rate is at the bottom end of the RBA’s “neutral” range means nothing. Any doves on the RBA board will be fighting to hold “neutral” as the desired target.

(The TD-MI headline inflation rise of 0.8 per cent and trimmed mean of 0.5 per cent for January contain a seasonal whack – education costs, for example – but still print ugly compared with previous Januaries. And there’s no comfort in the “year-to” figure still being in the RBA’s desired range. As a very rough but much better guide to the current state of play, try annualising the TD-MI results for the last three months and you get a bit over 5.6 per cent. Scary. )

The RBA’s warnings to all levels of government seem to have achieved nothing. Oh, there’s been plenty of talk, there always is, and Kevin even chimed in with some lofty ideas of enforcing national sustainability standards that probably will increase housing costs, not to mention the Feds’ effort in raiding their social housing budget to top up the primary school shed spree.

State governments are incapable of moving on population planning fast enough to make a difference at this stage. Some state governments are simply incapable. And most local governments are hamstrung by their state masters forcing them to extract ever greater charges from developers, never mind ever-growing meddling in private property rights. And the banks still don’t want to lend ot developers. It’s a bleak outlook.

On a purely anecdotal level, I suffered a wonder through a few open-for-inspections around the median Sydney home price on Saturday and found a certain sad air of desperation about them from the buyers’ perspective, not the vendors’.

As one agent remarked, the current market is such that a vendor who agrees to place a property on the market for $600,000 and gets an offer in the first week immediately thinks it must be worth $650,000. A buyer told me of the frustration of agreeing a price, pending a building report only to find the price jacked up by $50,000 while the report was being prepared.

Those of us with grey hair have seen it before. Share prices rising are reported on the business pages but house prices jumping cop front page headlines. Today it’s the ABS figures that will be supported by bullish statements from any and all property “experts”. Tomorrow it will be tabloid TV shows about the money to be made quickly renovating and flicking properties at the rising bottom of the market. And sometime after that, victims will awake to the RBA Governor coming at them with his big blunt instrument.

The could be a partial and temporary alternative. With many small-to-medium enterprises still to feel the recovery as interest rates rise, there’s an argument the RBA should be looking for a sharper weapon – targeting banks’ home mortgage lending capacity rather than bludgeoning all borrowers.

Making mortgages harder to get would do nothing to alleviate the underlying problem of supply and demand, just keeping Gen Xs and Ys at home with their parents even longer, but it could provide breathing space for governments to get off their collective backside.

There could yet be reliable self-interest for the politicians to move more quickly. Try getting re-elected when the Reserve Bank is telling the voters it’s the governments’ fault interest rates are rising above “neutral”.

Michael Pascoe is a BusinessDay contributing editor

MILIUX · February 1st, 2010, 12:13 PM

I don't think the housing price will tank or sink because of the continuing high intake of immigration. If the Federal government halves the immigration intake then the market will consider the lessening demand and will correct its projections accordingly.

The other alternative is to force new apartment builders to release more affordable property higher than current already stipulated by the Councils. I know there was a major scheme going on in Pyrmont where lower-socio economic first home buyers could purchase an affordable unit at a fraction of the market rate.

Lightness · February 1st, 2010, 12:29 PM

Once the bubble bursts in China, and that might be very soon according to some economists, we will see the housing market plunge in Australia. Not as severe as in the US but still a significant correction.

I believe we're just about to enter the second "V" in the "W" recession and this time it will be much more painful for Australia since China will be the main victim rather than the US or Europe.

Infrastructure investments and housing construction will be next to flat for a couple of years in China, which is terrible news for the resources industry. We're already seeing Chinese warehouses filling up as government spending is coming to an end.

Sorry to be such a spoilt sport but looking in my crystal ball I can see the GFC will turn into the Global Oversupply Crises.

MILIUX · February 1st, 2010, 12:37 PM

I cannot phantom how China could burst its bubble though. China has an extraordinary sovereign wealth fund and government owned enterprises which can continue to tick the economy and avoid a 'major correction'. Unless there is a major war happening nearby like the Korean War or China-Taiwan, the economy should be able to tick because on GDP/capita basis they are still on emerging economy level.

Even the shrinking of the Chinese population wouldn't be able to hit the economy to the wall.

There is an economic term for resource boom and bust. It's called the Dutch disease. In the Dutch miracle the economy booms because of resource boom. Originally it was coined when the Dutch found oil deposits in the North Sea and founded the Royal Dutch Shell. Then suddenly the Dutch disease happened where because of the labour and resources were extraordinarily diverted and dependent on the resource boom the manufacturing sector couldn't expand fast enough because it was dried to the bone from labour skills and high currency exchange.

This concept that Australia may catch the Dutch disease are well discussed in the economy. Here is the report by the Australian Chamber of Commerce and Industry about the shrinking of manufacturing sector in Australia.

Lightness · February 1st, 2010, 01:03 PM

Have you been to China? Have you walked all those new giant shopping centres with loads of luxurious shops but no customers? Have you visited any of the many new no-expenses-spared nightclubs where you'll be only punter? Have you taken the maglev train from Shanghai airport to the centre and you're alone in the coach?

The over-supply in China is acute. Many state-owned companies haven't been able to survive on their own for decades and now even a lot of the private ones are held up by government stimulus spending. The export industry, as you know, is already hurt by falling demand in foreign markets.

MILIUX · February 1st, 2010, 01:07 PM

According to the latest projects, the Chinese economy is projected to accelerate its growth. But perhaps those empty shopping centres reflects the defensiveness of Chinese consumers during the GFC. The economy is slowly adjusting itself to be inward looking i.e. domestic consumption driven instead of excessively dependent on export.

Lightness · February 1st, 2010, 01:11 PM

I'm optimistic on China in the long-term but all overheated economies will see a correction at some point. A recession is natural and healthy in any bubble economy but not so for those who are supplying the resources to that economy.

Dimethyltryptamine · February 1st, 2010, 01:15 PM

I've heard a lot about this possible crash.

scary.

Citystyle · February 1st, 2010, 01:19 PM

Quote:

Originally Posted by Lightness

Once the bubble bursts in China, and that might be very soon according to some economists, we will see the housing market plunge in Australia. Not as severe as in the US but still a significant correction.

Depends totally on the global economic outlook. Im like you starting to beleive the GFC was more like 1919 than 1929.

No reason to suggest that Australia could not have an over correction in a similar fashion to the US. Confidence was never undermined enough and if we start producing enough housing stock ontop of our current 300,000 unused stock we could see prices fall dramatically.

Quote:

Originally Posted by Lightness

I believe we're just about to enter the second "V" in the "W" recession and this time it will be much more painful for Australia since China will be the main victim rather than the US or Europe.

Quote:

Originally Posted by Lightness

Sorry to be such a spoilt sport but looking in my crystal ball I can see the GFC will turn into the Global Oversupply Crises.

Even if China's bubble does not burst the flipside will be a massive inflation bubble and a higher cost of living.

MILIUX · February 1st, 2010, 01:20 PM

Unlike the Asian Miracles which then turn bust in 1997, China has a lot of sovereign wealth funds to spend its way out of recession.

There is one other threat to the Chinese economy: the rise in commodity price especially coal and oil. Both are essential for the Chinese economy because of its dependence for industrialisation. I think China significantly reduced its subsidy for oil before the GFC which caused mayhem in OPEC. China is working hard to reduce its dependence by building renewable energy projects and public transportation.

MILIUX · February 1st, 2010, 02:18 PM

Intergenerational Report is published today:
http://www.treasury.gov.au/igr/igr20...f/IGR_2010.pdf

Found some interesting stats in the context of economic growth for future:

LanceDriver · February 1st, 2010, 11:39 PM

I still think the thread I created that got remaned to the GFC thread should have remained the Depression Thread. Government stimulus around the world has just delayed it somewhat. Debt Deflation will happen and the stimulus and low interest rates recently will make it even worse.

MyFavco · February 2nd, 2010, 03:32 AM

I feel another interest rate rise coming on in about 120 minutes time.

If the RBA hikes again today, it will be an unprecedented 4 upwards moves in as many meetings.

It will leave the rest of the world scratching thier head (if any of them are actually paying us any attention).

tayser · February 2nd, 2010, 04:59 AM

BaBAWM. Rates unchanged.

LanceDriver · February 2nd, 2010, 05:22 AM

Just what we need, the continuation of cheap credit and more debt.

deanh · February 2nd, 2010, 05:34 AM

FFS... that means no increase in the interest the bank pays me.

FFS FFS

Skyrazer · February 2nd, 2010, 05:34 AM

No rate rise!

Now that came way out of left field I have to admit.

Quote:

Originally Posted by deanh

FFS... that means no increase in the interest the bank pays me.

Yep. With most of my dosh in cash savings, it is somewhat annoying. Meh no biggie, as a hard saver, I'm used to getting the short end of the stick in this country.

Trunter · February 2nd, 2010, 05:43 AM

Damn, the bloody Aussie Dollar can't make up its mind. I'm going to Japan in one week time, and the AUD-YEN rate keeps jumping and falling from a high from 85 Yen to a low as of now of 79 Yen.. Ugh.. Exactly what I needed.

cowface · February 2nd, 2010, 05:45 AM

Quote:

Originally Posted by deanh

FFS... that means no increase in the interest the bank pays me.

An extra 25 basis points would mean an extra $20 a month on savings of $100,000. FFS!!1!

February 1st, 2010, 11:52 AM	#1
MyFavco Regular User Join Date: Apr 2007 Location: Brisbane CBD Posts: 970 Likes (Received): 1	The Economic Outlook Well now,......... Now that the GFC is 'over' and Interest Rates have stopped falling, the Most Expensive House in AUS has been purchased, the speculation is over that House Prices won't go any lower, Oil Pricing is back to where it was always going to be, and of course the Financial Markets continue on their predictable course,...... all this makes me think it is time for a new thread...... a thread which captures news articles about our future macro economic projections. A thread that captures what the commentators suggest is the outlook for interest rate movements, the cost of housing, construction activity, inflation concerns, currency and GDP...... ..... all the things about the future which should matter if you are about to get in to property, houses, buildings and/ or skyscrapers.

February 1st, 2010, 12:13 PM	#3
MILIUX skyscraper connoisseur Join Date: Sep 2002 Location: Sydney Posts: 5,521 Likes (Received): 25	I don't think the housing price will tank or sink because of the continuing high intake of immigration. If the Federal government halves the immigration intake then the market will consider the lessening demand and will correct its projections accordingly. The other alternative is to force new apartment builders to release more affordable property higher than current already stipulated by the Councils. I know there was a major scheme going on in Pyrmont where lower-socio economic first home buyers could purchase an affordable unit at a fraction of the market rate. __________________ My Flickr V2 Last edited by MILIUX; February 1st, 2010 at 12:19 PM.

February 1st, 2010, 12:29 PM	#4
Lightness En travesti Join Date: Nov 2006 Location: Brisbane Posts: 506 Likes (Received): 43	Once the bubble bursts in China, and that might be very soon according to some economists, we will see the housing market plunge in Australia. Not as severe as in the US but still a significant correction. I believe we're just about to enter the second "V" in the "W" recession and this time it will be much more painful for Australia since China will be the main victim rather than the US or Europe. Infrastructure investments and housing construction will be next to flat for a couple of years in China, which is terrible news for the resources industry. We're already seeing Chinese warehouses filling up as government spending is coming to an end. Sorry to be such a spoilt sport but looking in my crystal ball I can see the GFC will turn into the Global Oversupply Crises. __________________ "I drink to make other people interesting" George Jean Nathan

February 1st, 2010, 12:37 PM	#5
MILIUX skyscraper connoisseur Join Date: Sep 2002 Location: Sydney Posts: 5,521 Likes (Received): 25	I cannot phantom how China could burst its bubble though. China has an extraordinary sovereign wealth fund and government owned enterprises which can continue to tick the economy and avoid a 'major correction'. Unless there is a major war happening nearby like the Korean War or China-Taiwan, the economy should be able to tick because on GDP/capita basis they are still on emerging economy level. Even the shrinking of the Chinese population wouldn't be able to hit the economy to the wall. There is an economic term for resource boom and bust. It's called the Dutch disease. In the Dutch miracle the economy booms because of resource boom. Originally it was coined when the Dutch found oil deposits in the North Sea and founded the Royal Dutch Shell. Then suddenly the Dutch disease happened where because of the labour and resources were extraordinarily diverted and dependent on the resource boom the manufacturing sector couldn't expand fast enough because it was dried to the bone from labour skills and high currency exchange. This concept that Australia may catch the Dutch disease are well discussed in the economy. Here is the report by the Australian Chamber of Commerce and Industry about the shrinking of manufacturing sector in Australia. __________________ My Flickr V2 Last edited by MILIUX; February 1st, 2010 at 01:01 PM.

February 1st, 2010, 01:03 PM	#6
Lightness En travesti Join Date: Nov 2006 Location: Brisbane Posts: 506 Likes (Received): 43	Have you been to China? Have you walked all those new giant shopping centres with loads of luxurious shops but no customers? Have you visited any of the many new no-expenses-spared nightclubs where you'll be only punter? Have you taken the maglev train from Shanghai airport to the centre and you're alone in the coach? The over-supply in China is acute. Many state-owned companies haven't been able to survive on their own for decades and now even a lot of the private ones are held up by government stimulus spending. The export industry, as you know, is already hurt by falling demand in foreign markets. __________________ "I drink to make other people interesting" George Jean Nathan

February 1st, 2010, 01:07 PM	#7
MILIUX skyscraper connoisseur Join Date: Sep 2002 Location: Sydney Posts: 5,521 Likes (Received): 25	According to the latest projects, the Chinese economy is projected to accelerate its growth. But perhaps those empty shopping centres reflects the defensiveness of Chinese consumers during the GFC. The economy is slowly adjusting itself to be inward looking i.e. domestic consumption driven instead of excessively dependent on export. __________________ My Flickr V2

February 1st, 2010, 01:11 PM	#8
Lightness En travesti Join Date: Nov 2006 Location: Brisbane Posts: 506 Likes (Received): 43	I'm optimistic on China in the long-term but all overheated economies will see a correction at some point. A recession is natural and healthy in any bubble economy but not so for those who are supplying the resources to that economy. __________________ "I drink to make other people interesting" George Jean Nathan

February 1st, 2010, 01:15 PM	#9
Dimethyltryptamine Registered User Join Date: Aug 2009 Posts: 10,653 Likes (Received): 431	I've heard a lot about this possible crash. scary.

February 1st, 2010, 01:20 PM	#11
MILIUX skyscraper connoisseur Join Date: Sep 2002 Location: Sydney Posts: 5,521 Likes (Received): 25	Unlike the Asian Miracles which then turn bust in 1997, China has a lot of sovereign wealth funds to spend its way out of recession. There is one other threat to the Chinese economy: the rise in commodity price especially coal and oil. Both are essential for the Chinese economy because of its dependence for industrialisation. I think China significantly reduced its subsidy for oil before the GFC which caused mayhem in OPEC. China is working hard to reduce its dependence by building renewable energy projects and public transportation. __________________ My Flickr V2 Last edited by MILIUX; February 1st, 2010 at 01:26 PM.

February 1st, 2010, 02:18 PM	#12
MILIUX skyscraper connoisseur Join Date: Sep 2002 Location: Sydney Posts: 5,521 Likes (Received): 25	Intergenerational Report is published today: http://www.treasury.gov.au/igr/igr20...f/IGR_2010.pdf Found some interesting stats in the context of economic growth for future: __________________ My Flickr V2

February 1st, 2010, 11:39 PM	#13
LanceDriver 70's porn star Join Date: Feb 2007 Location: Sydney Posts: 6,756	I still think the thread I created that got remaned to the GFC thread should have remained the Depression Thread. Government stimulus around the world has just delayed it somewhat. Debt Deflation will happen and the stimulus and low interest rates recently will make it even worse.

February 2nd, 2010, 03:32 AM	#14
MyFavco Regular User Join Date: Apr 2007 Location: Brisbane CBD Posts: 970 Likes (Received): 1	I feel another interest rate rise coming on in about 120 minutes time. If the RBA hikes again today, it will be an unprecedented 4 upwards moves in as many meetings. It will leave the rest of the world scratching thier head (if any of them are actually paying us any attention).

February 2nd, 2010, 04:59 AM	#15
tayser Champagne Socialist Join Date: Sep 2002 Location: Melbourne Posts: 10,533 Likes (Received): 33	BaBAWM. Rates unchanged. __________________ "America gave the world George Bush, France gave the world the ménage à trois... Game Over." UrbanMelbourne.info

February 2nd, 2010, 05:22 AM	#16
LanceDriver 70's porn star Join Date: Feb 2007 Location: Sydney Posts: 6,756	Just what we need, the continuation of cheap credit and more debt.

February 2nd, 2010, 05:34 AM	#17
deanh Sexiest Creature Join Date: Feb 2008 Location: Smiggin Holes, NSW Posts: 679 Likes (Received): 0	FFS... that means no increase in the interest the bank pays me. FFS FFS Last edited by deanh; February 2nd, 2010 at 09:49 AM.

February 2nd, 2010, 05:43 AM	#19
Trunter Registered User Join Date: Jan 2008 Location: Sydney Posts: 387 Likes (Received): 0	Damn, the bloody Aussie Dollar can't make up its mind. I'm going to Japan in one week time, and the AUD-YEN rate keeps jumping and falling from a high from 85 Yen to a low as of now of 79 Yen.. Ugh.. Exactly what I needed. __________________ It is the artist's business to create sunshine when the sun fails.

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