Economic update with CommSec’s Chief Economist

Craig James 1Earlier this week, Binnari Property hosted an economic update with CommSec’s Chief Economist, Craig James. Craig presented his overview of what is happening in the Australian economy and it was pleasing to see that Australia is in pretty good shape. There are always risks, concerns and potential problems, however the general mood of the day was positive. The media is doing a great job of sensationalising a negative spin on the economy, and with recent drops in interest rates and a bout of deflation there is plenty of ammunition out there for them to get their claws into.

Here is a summary of some of the key points from Craig’s presentation.

Long term inflation is falling and so are interest rates

Globally the inflation trend is getting noticeably lower and is currently sitting just above the 2% mark, which is the lowest in recent history. But it appears that for now, inflation is not a concern. Consequently, we have seen interest rates fall this year with CommSec forecasting more rate cuts before the end of the year. However the prognosis is that rate cuts are being used to stimulate the economy into greater growth, rather than provide support because it’s weak.

World economic growth is slower, but not by much

The 40-year average rate of economic growth has been around 3.6% per annum. Expected global growth over 2016 is at 3.2%, with China contributing 34% of this total. Of interest is that the United States is projected to contribute 19% of global growth, indicating that despite the slow down the US economy is still a major world driver. The long term trend is expected to pick up to 3.5% next year, with small steady increases thereafter. The US inflation data has been tracking between 1% and 2% for the past 8 years and appears to be under control. After 9 years of record low interest rates in the US, we finally saw an increase. However the rate rising process appears to have stalled and no immediate increases are expected.

Surge in domestic exports to China

As recently as 2007, Australia exported $500 million of food goods to China. In 2015, this surpassed $5 billion, a 10 fold increase in a relatively modest period. Despite the exceptional growth of this sector, the trend is expected to continue, and food exports will grow in significance to the Australian economy. While tourism numbers have been steadily climbing, visitor arrivals from China and Hong Kong have increased significantly over the last 7 years. In 2009, China and Hong Kong contributed 500,000 visitors per year. In 2016, it is expected that this will climb to more than 1.4 million, overtaking New Zealand as the largest visitor market.

Australian economic is growth set to continue

Australia has experienced continued economic growth over the past 10 years at an average rate of 2.7% per annum. Relative to other developed nations, this has been exceptionally high. Current and projected rates of growth are running above this trend, driven by increased export figures, low unemployment and strong consumer spending, particularly in the car and construction industries. New South Wales is currently the top performing state economically, closely followed by Victoria. Business conditions are running at an 8 year high, with a strong consumer environment and below-average unemployment lifting sentiment.

Employment is looking strong

While the unemployment rate is historically low, of great interest is the participation rate of those 60-64 years of age. In 2001, only 32% of people in that age group were in the workforce, whereas now that number has climbed to 57% and the trend is set to climb higher. This shows that people are working for longer and consequently, earning income for longer. Similar trends are also happening for those 55-54 year age bracket and those aged 65+. Youth employment is at a lower rate, however this is partially explained through longer periods of education.

Finally, here are Craig’s and CommSec’s forecasts for the next two years. I’m sure you’ll agree that they’re positive numbers and shows that we’re actually in great shape now and moving forward.

Craig James economic forecasts