Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number ten in our series for 2019 and today’s date is Friday, April 5.
First, I’ll be talking to Louise Hvala, co-founder of Gatehouse Legal Recruitment and founder of new startup Alifery which is leading the legal profession into the future by connecting ASX listed companies, private businesses and law firms with highly experienced expert freelance lawyers for work opportunities, contracts and projects. Within a year, Alifery has over 700 users and is looking to raise capital later in 2019 to capitalise on this growth.
And I’ll be talking to economist Stephen Koukoulas about where the economy is heading and what the RBA is going to do.
But first, let’s talk to Louise Hvala.
China’s first official economic gauge for March signalled stabilization in the world’s second-largest economy, easing one of the biggest worries for the global outlook. The manufacturing purchasing managers’ index rose to 50.5 from 49.2 last month, the biggest increase since 2012 and exceeding all estimates by economists. Both new orders and new export orders – leading sub-gauges that signal future activities — rose to the highest levels in six months. That’s good news for global investors, as China’s weakening demand had weighed on sectors such as auto producers and commodity exporters worldwide. However, with tariffs and uncertainty about whether a deal with the U.S. will be signed weighing on trade and no sign of a rebound in domestic consumption yet, there is still a way to go.
The World Trade Organisation slashed its global trade growth projection for 2019 to the lowest level in three years, citing the impact of rising commercial tensions and tariffs. World merchandise trade growth will slow to 2.6% this year and 3% next year, after notching 3% in 2018, the WTO said in its report. In September, the WTO said trade would increase by 3.9% in 2018 and 3.7% in 2019. The reduced forecast for 2019 marks the second consecutive year the WTO has pared back expectations and broadly reflects similar readings from the World Bank and the International Monetary Fund. The revised figures provide an important gauge of the stakes involved in President Donald Trump’s economic fight with China nearly a year after the initial salvos of the trade war were fired. At the same time, International Monetary Fund (IMF) Managing Director Christine Lagarde said that global growth has lost momentum amid rising trade tensions and tighter financial conditions, but pauses in rate hikes will help boost activity in the second half of 2019. Lagarde, in a preview of the April 12-14 IMF and World Bank Spring Meetings, said the global economy is “unsettled” after two years of steady growth, with the outlook “precarious” and vulnerable to trade, Brexit and financial market shocks.
Prime Minister Scott Morrison’s government pledged sweeping tax cuts and forecast Australia’s first surplus in more than a decade in a budget aimed at engineering a come-from-behind election victory. The Treasury projected a $7.1 billion surplus for the fiscal year through 2020, or $3 billion more than a December estimate. That’s handed Morrison ample ammunition to promise tax relief to about 10 million voters ahead of an expected May election. The Morrison government Budget promises an estimated $158 billion in promised tax cuts over a decade. It foreshadows tax cuts of up to $1080 a year for about 10 million low- and middle-income earners. It will reduce the tax rate for small businesses by 2.5 percentage points to 25% by fiscal 2022. The Coalition will also seek to flatten tax brackets by 2024, cutting the 32.5 per cent tax bracket to 30 per cent. But Treasurer Josh Frydenberg confirmed on Tuesday night the government will refuse to legislate the tax relief until after the May election – despite Labor offering to back the cuts in Parliament this week. It will seek to legislate a $75 one-off energy bill payment to pensioners this week. That leaves a tight timeframe for the tax cuts to be legislated before July 1, raising the prospect that workers could miss out on a bumper tax return in this financial year. “We will ask the Australian people: ‘Who do you trust to deliver lower taxes?’” Mr Frydenberg said. Under the changes, an annual tax offset for low and middle-income earners (LMITO) will be more than doubled from $530 to $1080, meaning someone earning between $46,000 and $90,000 will receive a rebate starting at the end of this financial year of $1080. That is about the same as one week’s wages, after tax, for someone on average weekly earnings. This more than matches Labor’s pledge to deliver an end-of-year rebate of $928 for the same 10 million people. Opposition leader Bill Shorten may up his offer when he responds to the budget on Thursday night. The cost over four years of the budget boost for low-income earners is $19.5 billion. It also provides one-time payments to more than 3.9 million Australians of A$75 for singles and A$125 for couples to help pay their energy bills and bolsters planned spending on roads, railways and airports to A$100 billion over a decade The $7.1 billion forecast surplus for next year is up from the $4.1 billion that the Government predicted in its mid-year budget update last December. The Coalition heads into an election with $43 million in budgeted but unannounced spending measures for this financial year and more than double that for 2019-20. Net debt is forecast to be $360 billion next financial year, but the Coalition is promising to eliminate it by 2030 if it retains government. The 2018-19 financial year is projected to end with a $4.2 billion deficit. The Budget forecasts surpluses in each year over the forward estimates, reaching as high as $17.8 billion in 2012-22. While the government forecasts surpluses through at least 2023, it relies on some rosy economic projections. Stagnant wage growth is predicted to leap to 3.25% in 2020-21 after hardly budging for the past five years. The government’s also banking on continued solid jobs growth and consumption holding up. The Government has also matched Labor’s commitment to end a freeze on the Medicare rebate for GP visits from the first of July, as part of a $1.1 billion primary healthcare plan. Small and medium businesses have also been given another boost with the government extending its instant asset write-off scheme from businesses with $10 million annual turnovers to those with $50 million annual turnovers. The maximum deduction will be increased from $25,000 to $30,000. The budget also tries to help the Nationals with a sizeable proportion of the $100 billion infrastructure spend dedicated to the regions.
The Reserve Bank of Australia (RBA) kept its cash rate unchanged at 1.5% in April maintaining the period of policy stability that’s been in place since August 2016.
Approvals to build new homes in Australia jumped sharply in February, surging by the most in over five years. According to the Australian Bureau of Statistics (ABS), total approvals rose by a mammoth 19.1% after seasonal adjustments, logging the largest increase since September 2013. Economists had been looking for a decline in approvals of 1.8%.
|The trade balance improved in February to a record surplus, following January’s strong surplus. Underlying this was broadly steady exports, with a rise in iron ore offsetting a decline in coal. A decline in imports was largely due to lower fuel imports, likely reflecting price effects. After surging in January, exports of non-monetary gold did not retreat significantly in February. Taken together, the monthly trade data suggests a positive contribution from net exports towards Q1 GDP. The monthly trade balance improved to a surplus of AUD4,801m in February. Underlying this was a 1% fall in imports, while exports were broadly flat in the month.|
.Australian online retail sales plunged in February, adding to concerns about the health of household spending, the largest part of the Australia economy. The National Australia Bank’s Online Retail Sales Index slumped by 3.4% during the month in seasonally adjusted terms, the largest monthly decline on record. The sharp decline followed a 0.1% decline in January and saw annual growth in online trade slow sharply to 0.5%, also the weakest result in the history of the data series.
On the other hand, the Australian Bureau of Statistics (ABS) data shows retail turnover surged by 0.8% after seasonal adjustments, breezing past expectations for a far smaller increase of 0.3%. This was above every economist forecast offered to Bloomberg.
Australian property prices continued their slide last month, as prospective buyers delay purchases until after national elections and tougher lending standards make it harder to obtain financing. Housing values in the combined state and territory capitals fell 0.7% in March, to be down 8.2% from a year earlier, according to CoreLogic data. The nation’s two biggest cities remained at the forefront of the slump. Sydney prices fell 0.9% last month, and are now down 13.9 % from their mid-2017 peak, while Melbourne values dropped 0.8% to be 10.3% below their peak. While nationally the pace of declines is slowing, the downturn has become more widespread. Prices fell in most regional areas and six of the eight capital cities last month, with only Hobart in the black Canberra was unchanged.
Momentum in Australia’s manufacturing sector slowed in March, weighed down the downturn in the housing market, caution ahead of the Federal election and ongoing impact of the drought in the eastern states. The Australian Industry Group’s (Ai Group’s) Performance of Manufacturing Index (PMI) fell to 51.0 last month in seasonally adjusted terms, down three percentage points on the level reported in February. This PMI measures perceived changes in activity levels across Australia’s manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting. So at 51.0, activity levels still improved last month, albeit marginally.
Australia just received another ugly and concerning report card on its economic slowdown. The services sector — the largest employer in the country — is going backwards in early 2019. The Australian Industry Group’s (Ai Group) Performance of Services Index (PSI) stood at 44.8 in March after seasonal adjustments, logging the first three-peat of sub-50 readings for the first time since early 2016.
Labor has unveiled “Australia’s first” national electric vehicles policy package which includes a national electric vehicles target of 50% of all new car sales by 2030, a government fleet target of 50% by 2025 and tax deductions for businesses purchasing electric vehicles (EVs).
Industry’s 250 heaviest polluters will face possible penalties for breaching new emissions caps under long-awaited details of Labor’s ambitious climate change policy. All carbon-intensive sectors of the economy will contribute to achieving Labor’s goal of cutting emissions by 45% on 2005 levels by 2030, well above the Coalition’s target of 26% to 28%. Also, agriculture will not be slugged by the baseline and credit scheme. Instead, it will contribute through increased carbon farming; farmers being paid to offset carbon emissions by other sectors through such measures such as growing trees and managing their soil. There will also be nationwide bans on large-scale land clearing.
The costs to the major banks of remediating misconduct could top $6 billion by the end of next year, as analysts and former banking executives warn the torrid experience of shareholders in the United Kingdom offers a guide of what lies ahead. The experience of Britain’s banks with compensation should worry about local investors. David Rowe JPMorgan analysts Andrew Triggs and Nicholas Dalton last week increased their estimates for remediation costs by $125 million for ANZ and Commonwealth Bank and $300 million for National Australia Bank, after Westpac said compensation costs would wipe $260 million off its half-year profit. The analysts said the revisions would shave between 1% and 3% off the full-year net profits of ANZ, CBA and NAB, as they increased their forecast for total remediation provisions across the big four banks by $500 billion to $1.85 billion.
BHP is reviewing its full-year guidance as the fallout from Cyclone Veronica on its Western Australian iron ore operations continues to limit train movements at the company’s port facilities. The miner said as a preliminary estimate it expected the extreme weather event would reduce its iron ore production for the year by 6 to 8 million tonnes.
Former Commonwealth Bank chief executive Ian Narev has been offered a new role by job-hunting website SEEK. Mr Narev, 51, had kept a low profile during the banking royal commission — and had undertaken what CBA called his “early retirement” in early-2018. He will become SEEK’s new chief operating officer and chief executive of its the Asia Pacific and Americas division from April 29. In a statement, SEEK said that Mr Narev would work closely on “strategy development and operating priorities for the SEEK Group overall” with its CEO Andrew Bassat.
And that’s it for this week. And next week I have a great chat with Yaniv Bernstein, Airtasker’s VP of engineering.
And then I have a great chat with RMIT economist Sinclair Davidson analysing the Morrison Government’s election budget.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Wishing you all a great week, take care, be good and looking forward to bringing you Talking Business next week.