If you’re sick of politics BAU, check out my Pirate Party economics podcast interview

What does the economic policy platform of a Pirate Party look like? What does it say about intellectual property protection (i.e. copyright and patents), the Right to Repair, UBI, taxation, and business support? And what type of pirates are Pirate Parties inspired by exactly: Captain Jack Sparrow or Kim Dotcom? Pirate Party Australia Treasurer John August (a Fusion Party candidate for Bennelong in the 2022 federal election) answers these questions in a conversation with me in the latest episode of my Economics Explored podcast. For a sample of what John has to say, check out the video clip below.

You can listen to the full conversation using the embedded player below or via Google PodcastsApple PodcastsSpotify, and Stitcher, among other podcast apps. A transcript and relevant links are available via the Economics Explored website.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week. 

Posted in Budget, Industry policy, Macroeconomy, Social policy, Tax, Trade | Leave a comment

Economic update: interest rates, monetary policy, fiscal policy, and coal prices

The election debate would benefit from a clear understanding of the factors affecting interest rates, now that the RBA has increased the cash rate from the “emergency level” of 0.1%, practically the lowest it could go, to the still extraordinarily low 0.35%. First, both actions of the RBA and the government are relevant, although the RBA is the most important actor, as it is responsible for monetary policy, which is the main policy instrument for targeting inflation and keeping it in the 2-3% range, which it has now exceeded (see chart below). Second, both domestic and international factors are relevant, with the exchange rate playing an important role in the impact of domestic monetary policy.

Domestic factors

Inflation is a monetary phenomenon, and, ultimately, what the RBA is doing through manipulating the overnight cash rate is affecting the stock (or supply) of money in the Australian economy. The link between money supply growth and inflation may not be strong in the short-run, but is strong in the long-run, an important lesson from Milton Friedman.

Associated with the accelerating inflation we are now experiencing is the large growth we have seen in the money supply, due both to quantitative easing and the housing credit boom (see chart below). Australian households and businesses have a greater stock of money in their bank accounts (M3 has expanded 20% since March 2020), boosting their real money balances, to use the jargon, and prices have to catch up. There has been too much money chasing too few goods, as Friedman would have described it. Interest rates need to rise to reduce housing credit and money supply growth. Arguably, RBA monetary policy was too aggressive during the pandemic, sparking the housing credit boom and crazy increases in property prices across Australia.   

This is not to say the government is irrelevant. Its fiscal policy stance can certainly contribute to inflationary pressures, through its influence on aggregate demand, which can contribute to the economy overheating, so to speak. The federal budget stance is probably too expansionary given robust economic conditions – i.e. given the robust recovery, the federal government shouldn’t be planning a “cash splash” and expecting to run a $78 billion deficit in 2022-23 (see the 2022-23 Budget). The deficit should be much less, as suggested by the size of the estimated structural deficit (plus temporary measures), which appears to be a bit over 5% of GDP in the current financial year (i.e. over $100 billion) and 4-4.5% of GDP in 2022-23 (see Chart 3.15 on p. 105 of Budget Paper 1).

That said, the federal opposition won’t tighten fiscal policy if it wins the election, so it can’t criticise the government over this. Indeed, it’s being reported the federal opposition will increase budget deficits, although the Australian’s reporting of Labor turbocharging budget deficits appears a bit over the top if they’re talking about $10 billion over four years, which is a fraction of currently projected deficits. The federal opposition is claiming it will relieve inflationary pressures through improving the supply-side of the economy, through investing in education and improving child care support. Such measures may have some small salutary effects but would take time and wouldn’t address the fundamental problem that inflation is accelerating, inflation expectations are rising (see chart below), and there is no alternative but to increase rates. We don’t want to end up with inflationary expectations guaranteeing future inflation through wage and contract bargaining. If that occurs, the RBA may need to increase interest rates to punishing levels to get inflation back into the 2-3% range. Where interest rates will end up is anyone’s guess, but a 2 to 3 percentage point increase seems plausible at this point. 

Given the well known long and variable lags in monetary policy (see Assistant Governor Luci Ellis’s 2018 speech On Lags), the RBA probably should have acted earlier. There is a chance they acted too late, possibly because they were so adamant for so long they wouldn’t raise the cash rate until 2024 and they delayed until the last possible moment. Dennis Atkins at In Queensland and Steve Kates at New Catallaxy have written great articles criticising RBA decision making.

Certainly, other central banks, particularly New Zealand’s, have acted earlier and more aggressively than the RBA (see chart below), and the RBA may have made its biggest monetary policy blunder since the overly-restrictive monetary policy prior to the early-nineties recession – this time in the other direction. Now, the US Fed has shocked financial markets with its recent 0.5% policy rate hike, and there’s speculation of a coming US recession, so, as always, the future remains uncertain, and forecasting macroeconomic variables can make economists look foolish.  

International factors

It’s probably impossible to fully untangle domestic and international factors in influencing inflation and interest rates, because we’re so integrated into the global economy, but let’s think about the linkages. 

First, there is the correlation of economic activity across countries, transmitted via international trade, real interest rates and borrowing costs globally, or via common shocks (e.g. the pandemic). Major economies are rebounding from the pandemic recession and, hence, interest rates are rising at the same time across economies. 

Second, there is the fact that our real (i.e. inflation adjusted) interest rates can’t deviate too far from those in other countries because that will affect capital flows (i.e. if our real interest rate is lower, fewer foreign investors would buy Australian bonds) and this will affect the exchange rate. So if major economies are tightening their monetary policies, and their real interest rates are increasing, and, if we don’t do the same, then we become a less attractive destination to invest in and we experience a real currency depreciation. While good for exporters, this is bad for consumers and would contribute to domestic inflation through higher import prices (and through its impacts on exports it could contribute to over-heating). This means the RBA faces a difficult balancing act. It may not want to increase interest rates as aggressively as other central banks, for fear of slowing the economy too much or crashing house prices, but this would mean a depreciating currency and imported inflation.  

The outlook from here

I expect we’ll have to endure an extended period of much higher inflation than we expected, but output and employment outcomes should remain strong for the next year or so at least. Among other positive contributors, the Queensland economy and state budget are getting a substantial boost from the super-high coal prices we’ve seen (see chart below, noting the ICE Newcastle coal price is for thermal coal). 

This is going to mean billions of extra dollars for the Queensland budget. The state government should use this windfall to reduce its borrowings so it can limit the impact of rising interest rates (see chart below), which will lift its debt servicing costs (the interest expenses line item in the budget) in coming years.

Finally, on the robust economic recovery, John McCarthy has a good report at In Queensland covering the latest retail trade data: Perfect swarm: Consumers head back to the shops as investors target Queensland. People are certainly out-and-about more in Queensland than in southern states, as you can see from Google mobility data (see chart below). There is a big drop in the penultimate data point for Queensland in this chart which is related to the Labour day holiday. Incidentally, even on the days when other states have a public holiday, Queensland mobility is lower on those days, too, probably because of our more restrictive retailing trading regulations. 

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week. 

Posted in Macroeconomy | Tagged , , , , , , , , , , | Leave a comment

Coaldrake integrity inquiry submission

Professor Peter Coaldrake appears to be doing a great job in his Review of culture and accountability in the Queensland public sector, and I’ve been impressed by his findings in his interim report regarding the politicisation of the public service, something which has been of concern for many years. I’m going to provide a submission to the inquiry, encouraging Professor Coaldrake to think about the implications of the integrity issues he’s identified for Queensland’s public financial management. A first draft of my submission is provided below and I’d welcome any comments and suggestions.

Draft submission to Coaldrake Review of culture and accountability in the Queensland public sector

Dear Professor Coaldrake

Your review has revealed some important concerns regarding culture and accountability in the Queensland public sector so far, and I would encourage you to delve deeper, particularly into what it means for public financial management. 

As a former public servant who has held various roles in the Australian Treasury and Queensland Government agencies, I have become concerned about some recent financial manoeuvres by the state government. These actions raise questions about: 

  • the integrity and reliability of the public financial accounts over the long-term as the impacts of these various fiscal manoeuvres accumulate (i.e. we may be fooled into thinking the state’s financial position is much better than it actually is, meaning governments could spend more than is desirable); and 
  • the ability of the state public service, particularly the state Treasury, to provide frank and fearless advice. 

The most egregious financial manoeuvre was the 2021 fake privatisation of the Titles Registry, which was designed to reduce Queensland’s reported net debt, but in a way that, in my view, was contrary to well-established government accounting principles. I have developed this argument in two articles on Queensland Economy Watch which I would refer you to:  

https://queenslandeconomywatch.com/2022/02/04/qld-titles-registry-trickery-should-be-investigated-in-integrity-inquiry/

https://queenslandeconomywatch.com/2022/01/17/fake-privatisation-of-titles-registry-helping-qld-govt-pretend-it-has-debt-management-plan/

Also worth investigating by your review is the Government’s current proposal to shift residential tenancy bonds being held in trust by the Residential Tenancies Authority (RTA) into the Queensland Government’s bank account. This has prompted strong criticism by the Real Estate Institute of Queensland (REIQ) and Tenants Queensland. In its 1 April 2022 submission to the Queensland Parliament’s Economics and Governance Committee REIQ observed:

The RTA currently holds close to $1 billion of rental bonds for Queensland tenants. The proposed amendments to the RTRA [Residential Tenancies and Rooming Accommodation] Act have the effect of allocating these funds to the Government’s operating bank account (and its balance sheet).  These monies belong to Queenslanders and they should remain held by the RTA ‘on trust’. 

Depending on the specific accounting treatment, this could be another tricky way to claim a reduction in net debt without actually improving the state government’s net financial worth, and hence it could lead to poorer government budget management. 

With the authority given to you by this review, you have the power and responsibility to uncover the truth about these questionable financial manoeuvres. Ultimately, integrity concerns could have real costs to taxpayers through poorer public financial management. Hence it is important that your review considers these matters.

Queensland Parliament House, corner of Alice and George Streets, Brisbane.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week. 

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Unemployment and state budgets update

On Monday, I appeared on the 612 ABC Brisbane Radio Drive program (from 2:09:00) to chat with Kelly Higgins-Devine about how we estimate the unemployment rate, a matter of interest that day obviously due to the Opposition Leader being unable to remember the 4% national unemployment rate. I mentioned the ABS methodology is based on internationally-consistent definitions agreed via a forum organised by the ILO, and that the ABS undertakes a comprehensive survey of around 26k households (see Labour Force Survey methodology). 

That said, the ABS may need to undertake a public information campaign to improve public confidence in its labour force data. Based on the questions I received from Kelly on the Drive program, there appears to be a lot of scepticism in the community about the data, largely because, technically, you are counted as employed if you only work an hour per week. But as the ABS has pointed out in a post How many people work one hour a week?: “Only a very small number of people usually work one hour a week – most of whom would not like to work any more hours.” It’s only about 15k people or 0.1% of all employed people in Australia. The vast majority of Australians work more hours than that (e.g. see chart below).

Another point I made was that it’s not as if the ABS is hiding the fact that some people working part-time (i.e. less than 35 hours per week) would like to work more hours. The ABS produces an underemployment rate estimate (see chart below), and an underutilisation rate estimate which is the sum of the unemployment and underemployment rates. The underemployment rate, as reported by the ABS was 6.6% in February. Adding it onto the 4% unemployment rate, we get an underutilisation rate of 10.6%. While the unemployment rate is at a rate last seen before the financial crisis, the underemployment rate, and hence the underutilisation rate, are still significantly higher than they were back then, particularly for Queensland. Possibly the media and commentators pay too much attention to the unemployment rate figure and should discuss underemployment as well. The underemployment data are available, so there’s no reason to think the labour force data are being manipulated or something is being covered up.   

Another criticism of the unemployment data I’ve heard relates to the discrepancy between the ABS’s unemployed persons estimate (i.e. 563k people in February) and the number of people on JobSeeker payment (i.e. 868k people in February). The difference between them comes from the fact you can receive JobSeeker but not be currently available to work, so you wouldn’t be classified as unemployed according to the ABS’s definition. For instance, you could be sick or injured and receive JobSeeker, but not be counted as unemployed by the ABS. Is this misleading? I don’t think so, but I would like to have a closer look at the composition of people on JobSeeker to make sure I really understand the source of the discrepancy, and I’ll aim to do that in a future post. 

The March labour force figures will be published tomorrow (Thursday 14 April) and we’ll see whether the unemployment rate will fall below 4% and end up at a rate not seen since the early seventies. Certainly there is extraordinary momentum in the economy and along with super-high commodity prices, that will have a big positive impact on upcoming state budgets, as I’ve attempted to estimate in a recent report:

Nearly $30 Billion of Potential Upside for State Budgets in 2021-22 and 2022-23

Highly relevant to Queensland’s state budget, coal prices have been going crazy and the market is expecting them to remain high for the next year or so, based on futures pricing (see chart below). That represents a big injection of money for Queensland Treasury. Sure, the state government faces an expensive clean up bill for the floods, but the federal government will cover the bulk of the cost, and the economy is performing better than expected, which will boost payroll tax revenue. Consider that Queensland’s unemployment rate was 4.3% in February, while the mid-year budget update forecast an average rate of 5.25% in 2021-22 and 5% in 2022-23. In Queensland and the rest of Australia, state budgets are looking stronger.

N.B. 1st position refers to one-month ahead futures prices and 12th position refers to 12-months ahead prices (i.e. currently for March 2023 delivery). 

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week. 

Posted in Budget, Labour market, Macroeconomy | Tagged , , , , , | 2 Comments

Will the Brisbane Olympics stack up? The Federal Parliamentary Library investigates

The latest federal budget refers to “$22.5 million for the Brisbane Olympic and Paralympic Games 2032 – Business Case Development”. It’s a shame that we didn’t spend some of that money prior to deciding to bid for the Games, to determine whether it would be worthwhile to host them. Consider that a new Australian Parliamentary Library Research Paper, authored incidentally by a past QEW contributor Rod Bogaards, raises big questions about the desirability of hosting the Olympics. Here’s one of the key points in the paper:

…there is considerable uncertainty as to whether the benefits of the Brisbane Olympics in 2032 will outweigh the costs to the community, even with the ‘New Norm’ changes. This suggests the need for any prospective host government to undertake a careful assessment of costs, benefits and risks before committing to host the Olympic Games.

We know that a careful assessment of costs, benefits, and risks wasn’t done for the Brisbane Olympics prior to bidding, something I noted in a previous QEW post which Rod cited in his paper (on p.21).

Of course, we won the Games, and I don’t want to continue to be a killjoy, but I remain concerned that as a strictly economic proposition the Olympics doesn’t stack up. I suspect we’d be far better off taking a fraction of the money we’ll spend on the Olympics and funding upgrades of local sporting clubs and school sports facilities instead. In my view, you have to place a very large value on its potential boost to national pride, and engage in arguably wishful thinking regarding the long-term tourism impact, to convince yourself that the Olympics makes sense to host. Let’s cheer on the Green and Gold team at the Olympics for sure, but why not let some other host city with gullible decision makers pay the bill?

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

Posted in Queensland Government | Tagged , , , , | 1 Comment

Concorde’s lesson for gov’t industry promotion efforts

Interventionist industry policies by governments, such as the Queensland Government’s current hydrogen industry strategy, are usually viewed sceptically by economists, because they often deliver poor value for money for taxpayers and don’t have logical rationales. One notorious example from history is the Concorde, which was an incredible technical achievement and a beautiful airplane, but cost the British and French governments 11 billion pounds (as calculated by the Economist in 2003, so it would be more now due to inflation), and the end result was an aircraft that ultimately proved uneconomic to operate. I tell the story of Concorde in my latest Economics Explored podcast episode.

You can listen to the conversation using the embedded player below or via Google PodcastsApple PodcastsSpotify, and Stitcher, among other podcast apps. 

Show notes and a transcript of the episode are available at:

Concorde’s economic lessons: a closer look – EP131

British Airways Concorde Aircraft, sometime in the 1976-2003 period when they were in service.

In my view, one of the main lessons from the Concorde experience is governments should avoid interventionist industry policies. Instead, they should focus on delivering essential services and setting competitive tax and regulatory policy settings.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

Posted in Industry policy | Tagged , , , , , , , | 2 Comments

Qld Gov’t $3k EV subsidy looks like poor value for money for taxpayers

As far as I can tell, the Queensland Government hasn’t released any economic analysis of its $3,000 electric vehicle (EV) subsidy, probably because, if it did, the analysis would reveal the subsidy was a poor use of public funds. Some back-of-the-envelope calculations can illustrate this.

First, let’s work out the reduction in greenhouse gas (GHG) emissions associated with an EV. According to PwC, in its 2018 Recharging the Economy report on p. 18: 

An average new ICE [internal combustion engine] vehicle emits roughly 185 gCO2/km compared to average new EVs which emit 98 gCO2/km if charged via the electricity grid. When charged via renewable energy sources, EVs emit zero emissions. As renewable energy represents an increased proportion of the electricity mix and battery capacity improves, EV emissions are estimated to fall to 58 gCO2/km.

Now, according to the ABS’s Survey of Motor Vehicle Use, the average distance travelled per year by passenger vehicles is 11,100km. Using this estimate, and the average CO2 emission estimates reported by PwC for ICE vehicles and EVs, it can be calculated that each new EV should result in a reduction of GHG/C02 emissions of 1.0-1.4 tonnes per annum. 

Let’s be generous and say each EV has a life expectancy of 20 years, which would mean 20-28 tonnes of GHG emissions avoided over its lifetime. If every household receiving the $3,000 EV subsidy would not otherwise have purchased an EV, that would mean the Government would effectively pay $107-150/tonne for GHG abatement. But I expect a lot of people who end up getting the subsidy would probably purchase an EV anyway. If we assume half of the EVs subsidised would have been purchased anyway, then the Government would effectively be paying $214-300/tonne for GHG abatement. This would be very poor value for money. Consider the following: 

  • The Centre for International Economics (CiE) has estimated Australia’s cost of GHG abatement at around $40-50/tonne (see p. 49 of the CiE report What existing economic studies say about Australia’s cost of abatement);
  • Australian Carbon Credit Units (for a tonne of GHG abatement) are trading at $31, according to the Renewable Energy Hub, and hence it would be cheaper for the state government to buy carbon offsets instead of subsidising EVs for a given level of emissions reduction; and
  • the social cost of GHG emissions is unlikely to be much higher than $100/tonne (e.g. see this Brookings note The social cost of carbon which refers to a 51 USD/tonne estimate), and hence governments should be unwilling to spend any more than $100/tonne to reduce GHG emissions. 

All these figures suggest that the Queensland Government will pay far too much to abate GHG emissions with its EV subsidy. There would very likely be much more cost-effective emission-reduction measures it could support, and much better uses for the $45 million this subsidy will cost the budget.

I’m not criticising EVs, which are certainly the way of the future. I’m criticising the state government’s $3,000 subsidy. It look likes a high-cost way to achieve additional GHG emission reductions – i.e. reductions beyond those which would occur anyway as people naturally switch to EVs over time.

I’d really like to see the Queensland Government’s analysis of the cost-effectiveness of its EV subsidy, although I suspect it didn’t prepare one, because it probably guessed the analysis wouldn’t look good, or it doesn’t care about the cost-effectiveness of its policy measures, only their political attractiveness.  

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

Posted in Budget, Environment | Tagged , , , , , , , | 4 Comments

Qld the fastest growing state with Southerners flocking here: 41k net migration gain in 12 months to Sep-21

At nearly 41,000 people in the twelve months to 30 September 2021, net interstate migration to Queensland is the highest it’s been since the early 2000s, according to the ABS’s latest population estimates (see chart below). Queensland is the fastest growing state in Australia, at 1.1% yearly compared with 0.3% nationwide. Obviously, this has been a big contributor to Brisbane property prices growing the fastest in the nation over the last twelve months, an incredible 29.7%, according to CoreLogic (see Growth in Australian housing values continues to lose steam as Sydney records first decline in 17 months). During the pandemic, many Australians obviously reassessed their lives and decided to move to Queensland, either for the first time or back here. While, in my view, some of our COVID-related restrictions were excessive, they were nowhere near as harsh as the measures in Victoria, and our lockdowns didn’t last as long as those in NSW and Victoria, so comparatively we looked very good.

Yesterday, we also learned from the ABS that the unemployment rate remains at a very low level, no doubt partly due to lower labour supply growth associated with a lack of international migration. In February, Queensland’s unemployment rate was 4.3% compared with a national average of 4.0% (see the chart below).

Finally, the war in Ukraine goes on, and it is still disrupting the global economy, as well as being an humanitarian crisis. Coal prices remain at crazily high levels (e.g. see the coking coal 1-month ahead “1st position” and 12-month ahead “12th position” futures prices in the chart below).

The hundreds of millions of dollars of extra royalty revenue to Queensland as a result of the super high coal prices mean the Queensland Government has lots of additional money to throw at its favourite causes such as electric vehicles (EVs), which are getting an extraordinary $3,000 subsidy from the state government. What a wasteful and highly inequitable policy measure, one where the benefit will largely go to affluent households, many of whom would already be planning to purchase an EV. Wouldn’t that money be better spent on flood repairs or on needy schools or hospitals? Sure, we need to massively reduce greenhouse gas emissions over the next few decades, but this is an inefficient and inequitable policy regardless, in my opinion.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

Posted in Macroeconomy | Tagged , , , , | 3 Comments

Thriving, a new book by Wayne Visser, Cambridge pracademic and sustainability expert – my latest podcast episode

Wayne Visser, of the Cambridge Institute for Sustainability Leadership and Antwerp Management School, has written a thoughtful and informative new book Thriving: The Breakthrough Movement to Regenerate Nature, Society, and the Economy. Wayne is reassuringly optimistic about the future of the planet due to a variety of technological and business practice changes that mean we are approaching “tipping points”, after which we will rapidly reduce the stress we are placing on the environment – all going well, of course, as nothing is guaranteed. 

I was grateful to interview Wayne for the latest episode of my Economics Explored podcast. Wayne spoke about a convergence of positive developments, such as rapidly improving electric vehicles, cultured/lab-grown meat, blockchain and synthetic DNA to aid traceability of supply chains, green hydrogen, and Unilever committing to deforestation-free palm oil (by 2023, and whether it achieves that is still to be determined, I should note). You can listen to my conversation with Wayne using the embedded player below or via Google Podcasts or Apple Podcasts, among other podcast apps. 

Here’s a short video clip of our conversation in which Wayne introduces the concept of Thriving:

These developments are of great interest to Queenslanders and other Australians, of course, given they could mean substantial structural change for our economy, which has a greater reliance than others on coal mining and livestock farming. I suspect my conversation with Wayne would be of great interest to many of my Indonesian friends, too, given the challenging transition Indonesia also faces in coming decades. Palm oil has been an important commodity for Indonesia – indeed, there’s an oil palm monument in the Bogor Botanic Gardens (see my photo below) – but its farming has had adverse environmental consequences.

Oil palm monument, Bogor Botanical Gardens, south of Jakarta, Indonesia.

Finally, I’ve obviously been watching the war in Ukraine and thinking about what it means for the Queensland economy. One of the most direct impacts has been via the crazily high coal prices we’ve seen recently, something which means additional dollars for the state budget and coal miners, which John McCarthy at In Queensland covered and quoted me on last week: Auditor General’s report warns public sector blowouts could force cuts to services. On the downside, apart from being a humanitarian catastrophe, the war in Ukraine could mean a surge in business input costs, consumer prices, and hence inflation globally. 

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Housing lending remains at super high levels

First, my thoughts go out to all those affected by the recent flooding in Queensland and northern NSW. The intensity of the rainfall was extraordinary – in Brisbane, 80% of a full year’s rain in a few days reportedly. While, for Brisbane, overall flooding was not as severe as in 2011, it appears to have been worse in some pockets of the city, and some of our regional centres such as Gympie and Maryborough have been very badly affected. It’s too soon to tell what the ultimate cost and economic impact of the flooding is, but, whatever figures are produced, of course they won’t be able to convey just how devastating the flooding has been for many families, particularly for those who have lost loved ones.

The Queensland and national economies look like they will remain resilient this year despite the pandemic and natural disasters. A big unknown, of course, is what happens in Ukraine, and how much turmoil that causes internationally, but I can only speculate about that. Regarding what we can be reasonably confident about, as I’ve covered on QEW previously, the leading indicators for the economy such as job vacancies are very encouraging, and it appears that the economy has handled the omicron shock really well.

For instance, ABS retail trade data for January reveal that retail turnover in January in Queensland actually increased (by 0.4%), despite Queensland experiencing a lot of the omicron wave in January, as it came to us later than it did in NSW and Victoria. Those states experienced strong bounce backs in retail spending after large falls in December when they experienced the start of the omicron wave. 

Other indicators that are consistent with the resilient economy story are lending data published by the ABS today, which show super high levels of lending (and hence borrowing by households) continuing. Lending to owner occupiers in Queensland is running at around $4 billion per month, compared with $2-2.5 billion in the months leading up to the pandemic (see chart below).

Monthly lending to property investors in Queensland is now running at over $2 billion per month compared with well under $1 billion per month in the months leading up to the pandemic (see chart below).

All this new lending has been fuelling rapidly rising property prices and an expansion of the money supply, which appears to be having broader inflationary consequences (see Inflation & interest rates chat with 4BC’s Scott Emerson). As I’ve discussed previously, the RBA will probably have to act much sooner than it has previously planned if it is to control accelerating inflation. 

I should note that property prices may have risen as far as the market can bear in Sydney and Melbourne for now, according to CoreLogic data for February published today (see Growth in Australian housing values continues to lose steam as Sydney records first decline in 17 months). Sydney prices were down 0.1%, Melbourne prices were unchanged, while Brisbane prices increased 1.8% in February. Of course, as with any monthly indicators, in my view, we shouldn’t read too much into any monthly figures. Property prices are still up 22.4% in Sydney, 12.5% in Melbourne, and 29.7% in Brisbane over the last twelve months. These incredible results have been driven by the huge growth in housing credit shown in the previous charts.    

Finally, tomorrow, Wednesday 2 March, the December quarter 2021 National Accounts will be published by the ABS. The figures should show a strong bounce back in GDP in the December quarter after the lockdown-afflicted September quarter. Some market economists are expecting a GDP growth rate of above 3%, as reported by Reuters (see Australia’s Q4 GDP looking even stronger as trade surprises | Reuters).  

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

Posted in Housing, Macroeconomy | Tagged , , , , , , , , , | Leave a comment