AUSTRALIAN ECONOMIC OUTLOOK AGAINST THE GLOBAL BACKDROP

Transcription

1 AUSTRALIAN ECONOMIC OUTLOOK AGAINST THE GLOBAL BACKDROP PRESENTATION TO ACTE-CAPA GLOBAL CONFERENCE 17 SOFITEL WENTWORTH HOTEL, SYDNEY 9 TH NOVEMBER 17

2 For more details Economic influences on business travel

3 Outbound international business travel has flatlined over the past three years but conference and convention travel has accelerated Outbound international business departures 9 1-mth moving total (s) Outbound international conference and convention departures 1-mth moving total (s) Source: ABS.

4 A number of different economic factors influence the level of, or changes in, the amount of overseas business travel Business conditions GDP growth mth moving total (s) Business departures (left scale) % change from year earlier Business departures (left scale) % Business conditions (right scale) % change from year earlier Real GDP growth (right scale) Company profits (pre-tax) Interest rates % change from year earlier Business departures (left scale) 1-mth moving total (s) Business departures (left scale) % change from year earlier Company profits (-qtr moving total) (right scale) RBA cash rate (right scale, inverted) % pa Share prices mth moving total (s) Business departures (left scale) Australian dollar 1-mth moving total (s) Business departures (left scale) ASX All Ords (right scale) US$ A$-US$ (inverted, right scale) 7 Thousands Sources: ABS; National Australia Bank; RBA; Thomson Reuters Datastream

5 Economic factors also have a significant influence on the amount of domestic business travel Business conditions mth moving total (mn) GDP growth % change from year earlier SYD-MEL pax (left scale) SYD-MEL pax (left scale) % Business conditions (right scale) % change from year earlier Real GDP growth (right scale) Share prices mth moving total (mns) Interest rates mth moving total (mns) SYD-MEL pax (left scale) ASX All Ords (right scale) % pa SYD-MEL pax (left scale) RBA cash rate (right scale, inverted) Thousands Iron ore prices 1-mth moving total (mn) SYD/MEL/ BNE-PER pax (left scale) Iron ore price (right scale) Mining company profits % change from year earlier SYD/MEL/BNE-PER pax (left scale) US$/t % change from year earlier Mining company pre-tax profits (-qtr moving total; right scale) Sources: Bureau of Infrastructure, Transport & Regional Economics (BITRE); National Australia Bank; Thomson Reuters Datastream; RBA; ABS.

6 For more details The world economy

7 World economic growth is picking up World real GDP growth Advanced and emerging & developing economies real GDP growth 7 % change from year earlier % change from year earlier 'Emerging & developing economies' 'Advanced economies Note: World GDP growth is the average of growth rates for economies ( advanced and emerging & developing ) accounting for 9% of total world GDP (according to IMF estimates), weighted by their shares of 1 world GDP at purchasing power parities. Sources: national statistical agencies and central banks; Corinna Economic Advisory.

8 The upswing in advanced economies is more synchronized than at any time since the crisis including within the euro area (but not the UK) Real GDP growth in advanced economies % change from year earlier % change from year earlier % change from year earlier US Euro area France Germany Netherlands Japan UK Italy Spain Sources: US Bureau of Economic Analysis; Eurostat; Japan Cabinet Office.

9 Consumer and business confidence have also improved in the major advanced economies, reflecting political as well as economic events Consumer confidence Business confidence Standard deviations from -17 mean Standard deviations from -17 mean 1 Japan Euro area 1 Euro area Japan US US Note: Consumer confidence measures are those compiled by the Conference Board (US), European Commission (euro zone) and Cabinet Office (Japan). Business confidence measures are those compiled by the National Federation of Independent Businesses (US), European Commission (euro zone) and the Bank of Japan (the tankan survey, averaged over large and small businesses).

10 The largest four advanced economies don t have much spare capacity left in their labour markets Unemployment largest advanced economies Employment rates largest advanced economies Unemployment rates other OECD economies % of labour force Germany % of population aged 1- Germany UK % of labour force Rest of OECD 7 UK 7 Japan US 7 Canada, Scandinavia, Australia, New Zealand & Korea Japan US US, Japan, Germany & UK Sources: US Bureau of Labor Statistics; Eurostat; Japan Labour Ministry; Bundesagentur fur Arbeit; UK Office of National Statistics ; OECD Main Economic Indicators; Corinna Economic Advisory.

11 Wages are taking longer to respond to labour market tightening than they did before the crisis but there s no reason to think they won t eventually Wages growth and unemployment in the four largest advanced economies % change from year earlier % of labour force Unemployment (right scale, inverted) Wages growth... % change from year earlier Q Q Earnings growth (left scale) 1. Q - Q % Unemployment rate lagged quarters Note: Wages growth and unemployment are averages for the US, Japan, Germany and the UK, weighted by total employment. Sources: US Bureau of Labor Statistics; Eurostat; Japan Labour Ministry; Bundesagentur fur Arbeit; UK Office of National Statistics; OED; Corinna Economic Advisory. 11

12 In the US there is now evidence that wages growth is picking up but unemployment has had to fall further than previously for that to start Alternative measures of labour earnings growth US unemployment.. % change from year earlier.. % change from year earlier (-mth moving average) 1 1 % of labour force Broadest measure of labour force under-utilization.. Average hourly earnings (private sector workers; -mth moving average)... Atlanta Fed wage growth tracker Wages component of employment cost index Average hourly earnings Conventional unemployment rate 1 Note: The Atlanta Fed wage tracker is the median pc change in the hourly wage of individuals in the labour force survey 1 months apart. Sources: US Bureau of Labor Statistics; Federal Reserve Bank of Atlanta.

13 The US Federal Reserve has already begun the process of returning monetary policy settings gradually back to normal others will follow Major advanced economy central bank policy interest rates Major advanced economy central bank balance sheets 7. % pa % of GDP Bank of Japan. 9. BoE base rate BoJ call money rate US Fed funds rate European Central Bank. -1. ECB deposit rate Bank of England US Federal Reserve Sources: US Federal Reserve; European Central Bank; Bank of Japan; Bank of England. 1

14 Three reasons why Trump s fiscal policies if they are ever legislated wouldn t have the same effect as Reagan s Interest rates Federal budget and debt Labour supply % pa % of GDP Budget deficit (left scale) Forecast Federal public debt (right scale) % of GDP 9 7 % of population aged 1 & over Forecast Potentially employed 1 - Unemployed - Fed funds rate year T-note yield - -1 Employed Sources: US Federal Reserve; US Congressional Budget Office. 1

15 China s economy is slowing, partly because its workforce has started to shrink and because productivity growth is slowing China real GDP growth Chinese population Chinese labour productivity 1 % change from year earlier. % change from year earlier 1 % change from year earlier 1 Forecasts. 1 NBS / World Bank Total population Conference Board. -. Working age (1-) population Sources: China National Bureau of Statistics; IMF ; UN Economic & Social Affairs Division, Population Branch ; The Conference Board; World Bank Group.

16 From late 1 through late 1 the Chinese authorities undertook another round of monetary stimulus but halted it abruptly in December last year Credit growth - total 1 % change from year earlier Credit growth by sector % change from year earlier Bank lending Total social financing' Non-financial sectors Governments Other financial institutions Banking system liabilities % change from year earlier Bonds 1 Deposits Banking system deposits-to-loans ratio % Source: People s Bank of China.

17 Hence China s latest property cycle has peaked, and steel-making commodity prices will be heading down again Real estate investment Cumulative % change from year earlier Urban property prices % change from year earlier Steel and cement production % change from year earlier (1-mth moving total) Iron ore imports Mn tonnes (1-mth moving total) Cement Finished steel Iron ore prices US$ per tonne (fob) Coal prices US$ per tonne Thermal coal (left scale) Metallurgical coal (right scale) Source: China National Bureau of Statistics ; China Ministry of Customs; Thomson Reuters Datastream.

18 For more details The Australian economy

19 Australian economic growth is lower than it should be, unemployment is higher than it should be, and inflation is lower than the RBA wants Economic growth Unemployment and underemployment Consumer prices % change from year earlier 1 % of the labour force % change from year earlier Gross domestic product (GDP) 'Under-utilization' rate 'Underlying inflation RBA target range -1 Per capita GDP Unemployment rate 1 'Headline inflation - 19 Note: The labour force under-utilization rate includes people employed part-time who are willing and able to work longer hours (and weights them equally with people who are unemployed in the conventional sense). Underlying inflation abstracts from the impact of volatile items (typically items such as petrol, or fruit and vegetables) on the CPI. Source: Australian Bureau of Statistics.

20 Australian business conditions are clearly improving, and that is fostering a long-awaited pick-up in (non-mining) business investment Business confidence Net balance (%) Business confidence Business conditions Business investment mining vs other sectors 1 $1-1 bn per quarter Other sectors - - Business survey capital expenditure expectations Net balance (%) NAB Sensis SME - - Mining - Westpac-ACCI - - Sources: National Australia Bank; ABS; Westpac and Australian chamber of Commerce & Industry; Sensis.

21 Higher levels of infrastructure investment spending are now beginning to provide some real impetus to economic growth Indicators of engineering construction activity for the public sector Value of work done Commencements Work yet to be done. % of GDP. % of GDP 1. % of GDP Financial years ended June. Financial years ended June. Financial years ended June Work by the private sector for the public sector Work by the public sector for the public sector 1 Source: ABS.

22 Employment growth has picked up this time led by full-time employment and seems likely to be sustained Employment growth. % change from year earlier Full-time vs part-time employment % change from year earlier (trend) NAB business survey employer hiring intentions Net balance (%) Trend.. Trend Part-time Seasonally adjusted Full-time Sources: ABS; National Australia Bank.

23 Sluggish wages growth has meant weak growth in household incomes and depressed levels of consumer confidence Nominal and real wages % change from year earlier Wage price index (WPI) (excl. bonuses) Household disposable income Real % change from year earlier Seasonally adjusted Household consumption expenditure Real % change from year earlier Wage price index (WPI) minus CPI Average, Q Q 11 (.% pa) Trend Retail sales 1 Average, Q 11 Q 17 (1.% pa) - Other types of consumer spending (excl. dwelling rent) Source: ABS

24 The RBA doesn t want to cut rates any further for fear that it would only encourage further increases in house prices and household debt Housing prices Sydney & Melbourne vs the rest 9 7 Rolling -mth median ($) Sydney Melbourne Household debt 1 1 % of household disposable income Housing construction activity 's (annual rate) Commencements 1 1 Other capitals 1 1 Regions 1 Completions Source: CoreLogic RP Data ; Australian Bureau of Statistics ; Reserve Bank of Australia.

25 Two-thirds of Australian household debt is owed by the richest % of households and that has barely changed over the past dozen years Household debt by income quintile, 1-1 Share of total debt by income quintile, 1-1 Share of increase in debt by quintile, - to $bn % of total household debt % of increase in total household debt, - to 1-1 Principal residence Other property Other debt 1 1 Lowest Second Middle Fourth Highest Lowest Second Middle Fourth Highest Lowest Second Middle Fourth Highest Source: ABS.

26 There s unlikely to be a lot of forced sellers in Australia, as there were in the US Home ownership rates, US and Australia Mortgage delinquency rates, US and Australia 7 % % of value of housing loans % of value of housing loans Australia 7 US US 1 Australia (banks) Sources: ABS, US Department of Commerce ; Reserve Bank of Australia; Mortgage Bankers Association of America.

27 and they re less likely to be selling into an over-supplied market than in the US, Spain or Ireland a decade ago Dwelling completions Australia and other advanced economies 199s average = 1 Australia UK US Spain Sources: Australian Bureau of Statistics; US Commerce Department; UK Office of National Statistics; Instituto Nacional de Estadística d España; Ireland Central Statistics Office

28 Australian interest rates probably won t start rising until late 1 or early 19 ; the A$ will track lower until interest rates have started to rise RBA cash rate A$ vs US$ % pa 1. US$ per A$ 7 Forecast 1. Forecast RBA to hold cash rate steady through 1, then lift it bp every six months, reaching.% by late A$ to decline to US7c by mid-19 on stronger US$ and lower commodity prices, picking up in after Australian interest rates begin to rise Sources: RBA; Thomson Reuters Datastream; Corinna Economic Advisory.

29 For more details So what does all this mean for the outlook for business travel?

30 On the basis of these forecasts growth in outbound business travel will pick up but different scenarios would see very different outcomes Actual and forecast outbound business departures Alternative scenario 1 Alternative scenario 1, s (moving annual totals) 9 s (moving annual totals) 1, s (moving annual totals) 1, Model prediction 9 Model prediction 1, Model prediction Actual Actual Actual Assumes RBA forecasts for GDP growth & unemployment, cash rate and A$ as per previous slide, ASX rises pts per qtr Assumes faster growth with unemployment falling to ½%, cash rate rising sooner and further, A$ falling less then rising to c, ASX up pts per qtr Assumes recession hits in mid-1, unemployment rises to 7% by end 19, RBA cuts rates to 1%, A$ falls to c, ASX bottoms at in early Sources: RBA; Thomson Reuters Datastream; Corinna Economic Advisory.

31 One other threat to the business travel market exaggerated fears of terrorism, and excessive security measures For more details

32 The number of terrorist incidents and the number of deaths due to terrorism have risen significantly in recent years Number of terrorist incidents world total , 1, 1, 1,,,,,, Number of deaths from terrorist incidents world total, 197-1,,,,,,, 1,,, Note: Data for 199 not available. Source: Global Terrorism Database, University of Maryland.

33 However in Western countries the number of incidents, and deaths resulting from terrorism, remains less than in the 197s or 19s Number of terrorist incidents in western countries, , Number of deaths from terrorist incidents in western countries, 197-1, 1,,,, 1, 1, Note: Western countries comprise Western Europe, the United States, Canada, Japan, Korea, Australia and New Zealand. Data for 199 not available. Source: Global Terrorism Database, University of Maryland.

34 So far this century, Americans are almost six times as likely to have been killed by another American with a gun as by a terrorist Mass shootings in the United States Terrorist incidents in the United States, Deaths (left scale) Incidents (right scale) 99 Deaths (left scale) Incidents (right scale) Note: Mass shootings are shootings entailing the deaths of four or more people (not including the shooter). Sources: William Krause & Daniel Richardson, Mass Murder with Firearms: Incidents and Victims , US Congressional Research Service, July 1; Global Terrorism Database, University of Maryland.

35 Australians are far more likely to die of a wide range of preventable causes than as a result of terrorism Selected causes of death, Australia, -1 1 's 1 Source: Australian Bureau of Statistics, Causes of Death, Australia (catalogue no.).

36 Australians are more likely to die from falls, drowning in their bathtubs, being bitten by various creatures, or lightning strikes, than from terrorism Some other selected causes of death, Australia, -1 7 Falling out of bed Falling off a chair Falling off a ladder Drowning in a bathtub Entry of foreign body through an orifice Bitten by a dog Struck by lightning Bitten by a crocodile Overexertion Terrorism Source: Australian Bureau of Statistics, Causes of Death, Australia (catalogue no.).

37 Security theatre Sources: ABC News; Melbourne Age. 7

38 This document has been prepared by Saul Eslake on behalf of Corinna Economic Advisory Pty Ltd, ABN 1 9, whose registered office is located at Level 11, 11 William Street, Melbourne, Victoria Australia. This document has been prepared for the entity or organization named on the front page hereof and is not to be used for any other purpose. This document does not purport to constitute investment advice. It should not be used or interpreted as an invitation or offer to engage in any kind of financial or other transaction, nor relied upon in order to undertake, or in the course of undertaking, any such transaction. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable. The views expressed in this document accurately reflect the author s personal views, including those about any and all financial instruments referred to herein. Neither Saul Eslake nor Corinna Economic Advisory Pty Ltd however makes any representation as to its accuracy or completeness and the information should not be relied upon as such. All opinions and estimates herein reflect the author s judgement on the date of this document and are subject to change without notice. The author and Corinna Economic Advisory Pty Ltd expressly disclaim any responsibility, and shall not be liable, for any loss, damage, claim, liability, proceedings, cost or expense ( Liability ) arising directly or indirectly (and whether in tort (including negligence), contract, equity or otherwise) out of or in connection with the contents of and/or any omissions from this communication except where a Liability is made non-excludable by legislation. Any opinions expressed herein should not be attributed to any other organization with which Saul Eslake is affiliated.