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).
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