Whoever wins Saturday’s federal election will face months of rising interest rates and growing household cost of living pressures, with the Reserve Bank of Australia making clear more rate rises are on the way
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 16 in our series for 2022 and today’s date is Friday May 20.
First, I’ll be talking to Dr Aengus Tran, a medical doctor and world-ranked Al engineer and data scientist who is the co-founder and CEO of harrison.ai, a clinician-led healthcare Artificial Intelligence (AI) company tackling some of the biggest issues in healthcare causing inequitable diagnosis and treatment today. They have rapidly developed breakthrough AI software in in-vitro fertilisation (IVF), chest X-rays, brain CTs and soon skin conditions, all with the aim of helping clinicians make the right diagnoses faster and treat patients sooner.
And I’ll be talking to KPMG economist Sarah Hunter about the interest rate rises and inflation.
But now, let’s talk to Dr Aengus Tran.
Goldman Sachs Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk”. “If I were running a big company, I would be very prepared for it,” Mr Blankfein said on CBS’s “Face the Nation” on Sunday (Monday AEST). “If I was a consumer, I’d be prepared for it.” A recession is “not baked in the cake” and there’s a “narrow path” to avoid it, he said. The Federal Reserve has “very powerful tools” to tamp down inflation and has been “responding well,” the former Goldman chief executive said. With high fuel prices and a shortage of baby formula tangible measures of Americans’ unease, US consumer sentiment declined in early May to the lowest level since 2011. US consumer prices rose 8.3% in April from a year ago, slowing slightly from March but still among the fastest rate in decades. Mr Blankfein’s comments were broadcast the same day as the firm’s economists cut their US growth forecasts for this year and next to reflect the recent shake-out in financial markets. Goldman’s economic team, led by Jan Hatzius, now expects US gross domestic product to expand 2.4% this year, down from 2.6%. It reduced its 2023 estimate to 1.6% from 2.2%. The report called this a “necessary growth slowdown” to help temper wage growth and reduce inflation back down toward the Fed’s 2% target. While the slowdown will push up unemployment, Goldman was optimistic a sharp rise in joblessness can be avoided. Mr Blankfein noted that while some of the inflation “will go away” as supply chains unsnarl and COVID-19 lockdowns in China ease, “some of these things are a little bit stickier, like energy prices”.
For the first time in decades, economists are questioning whether the Chinese government can meet its annual growth forecast, with some warning that the economy will never regain its pre-pandemic strengths. In the long term, this could sap demand for key Australian exports such as iron ore. This comes with China cutting the interest rate on new home loans in a surprise bid to stem a collapse in mortgage lending, as weak retail and factory activity in April compounded fears that Beijing’s stimulus measures are failing to offset the economic damage caused by COVID-19. The rate cut, by 0.2 percentage points to 4.4%, followed a surprise drop in lending in April and came just ahead of further data showing the extent of the slowdown in the world’s second-largest economy. China’s retail sales plunged 11.1% in April, twice as much as expected, as lockdowns in Shanghai and more than 40 other cities hit consumer spending,data released on Monday showed. It was the sharpest decline since the start of the pandemic in March 2020, when the entire country was shut down for several months. Industrial production also dropped 2.9% last month, in sharp contrast to economists’ expectations of a modest increase, as manufacturers struggled to resume normal operations even as cities emerged from lockdowns. China’s huge property market is the latest focus of concern after data released on Friday showed a collapse in new loans in April to their lowest level in four years. The focus is now on whether government stimulus will be enough to stave off the damage from the latest lockdowns, some of which are likely to continue well into next year
The Coalition says spending cuts across the public sector will deliver $3.3bn in savings to pay for its election commitments, as the government turns the pressure on Labor to submit its plans to Treasury for costing. The NDIS, ABC, SBS, Safe Work Australia, Australian Signals Directorate, Office of National Intelligence, Emergency Management Australia and National Recovery and Resilience Agency will be exempt. . The Community and Public Sector Union estimates that this will cut 5,500 jobs from the APS over the forward estimates from 2022-23. The treasurer, Josh Frydenberg , and finance minister, Simon Birmingham, released the Coalition costings in Melbourne on Tuesday, revealing that the proposed increase to the public sector efficiency dividend and changes to super contributions would offset the $2.3bn in new spending promises made by the Coalition since the beginning of the election campaign. This would deliver a $1bn improvement to the budget bottom line over the four-year forward estimates period, with $386m of this coming in 2024-25 when the deficit is forecast to be $42.5bn. Cumulative deficits over the next four years total $223bn. $2.7bn will come from the efficiency dividend, while an additional $653m in savings will come from changes to contributions made by public sector agencies to the Commonwealth Superannuation Corporation and the corresponding cost for entitlements accrued by employees under the defined benefits scheme
First homeowners could raid their superannuation up to 40% (a maximum of $50,000) to buy a house, Prime Minister Scott Morrison has pledged. They’d have to put it back when the house sold,along with some capital gains. It was the big announcement of his election campaign launch, branded a “last-ditch” effort to lure young voters. But the compound interest that would be lost on $50,000 is staggering, and it’s sure to hurt the women the most , who retire with 40% less super than men due to pay inequality and career breaks for child-rearing. Morrison also announced that over 55s would be able to sell their homes and invest an extra $300,000 in their super, claiming it would encourage downsizing. The policy is the latest Coalition announcement to benefit the wealthy retirees it is targeting for the election. Labor committed to match the proposal for over-55s, but opposed the super scheme, arguing that those most struggling to buy a home have the least super to use. Housing spokesperson Jason Clare says first home buyers usually have the smallest super balance, and besides, it would send housing prices skyrocketing (although for some of the landed gentry, that would be considered a good thing).
Industry Super has slammed Morrison’s super/housing scheme saying the additional money Australians can take out of super via the scheme would almost immediately be gobbled up through housing price surges as analysis shows it could hike the nation’s five major capital city median property prices by between 8-16%, Industry Super says the proposal is not what super was set up to do and would torpedo super fund investment returns for all Australians – forcing funds to carry more cash and be less able to invest for the long term – which has been the key in delivering members’ bigger nest eggs.
Millions of Australians will be able to access 10 days of paid domestic violence leave under a landmark decision by the Fair Work Commission. The Fair Work Commission has made a provisional decision that 2.6m permanent employees should be able to access the leave on a yearly basis at their base rate of pay. The full bench of the industrial umpire found that financial support was necessary to help employees leave a violent relationship, and it was unlikely to create a substantial cost for employers; In reaching In reaching its decision, the commission received information that 1-in-4 women and 1-in-13 men experienced at least one incident of domestic violence The Australian Council of Trade Unions, which led the case, said the ruling was “a generational achievement for millions of women” and called for the next federal government to expand the paid leave to all workers.
Consumer confidence dropped 1.3% last week to its lowest level since mid-August 2020, according to an ANZ-Roy Morgan survey. It has now fallen for three consecutive weeks.. Weekly inflation expectations increased by 0.2 percentage points to 5.3%, while its four-week moving average remained steady at 5.2%. This suggests that cost of living concerns are front and centre for consumers..
Whoever wins Saturday’s federal election will face months of rising interest rates and growing household cost of living pressures, with the Reserve Bank of Australia making clear more rate rises are on the way. According to the May board meeting minutes released on Tuesday, the bank considered a larger rise of 40 basis points and indicated a lift to 0.75 could be on the cards at its June meeting. They also agreed “further increases in interest rates would likely be required to ensure that inflation in Australia returns to the target over time” but it would be necessary to “monitor” how rising rates affected highly indebted households to determine the timing of future rate increases. Rising interest rates and declining real wages could hold back consumer spending and lead to bigger falls in property values than anticipated, the Reserve Bank has warned. “Some Australian households had incurred more debt than previously and many had never experienced rising interest rates,” the central bank said in minutes from its May 3 board meeting, published on Tuesday. “Housing prices in Australia could also be more sensitive to rising interest rates than assumed, which would be likely to result in lower household wealth and consumption.” The RBA has previously modelled a scenario showing highly indebted borrowers face a shock to their household budgets if interest rates rise by an expected 2 percentage points over the next two years, which could cause a 15% drop in home values.
Australian workers saw their base wages rise an average of 0.7% over the quarter and 2.4% over the past year, according to the Australian Bureau of Statistics. The annual pay rise trails a 5.1% jump in the cost of living, as measured by the Consumer Price Index, over the same period.
Atlassian billionaire Mike Cannon-Brookes has urged AGL shareholders to vote against the demerger of the company’s fossil fuel business, promising to help the energy player create a “more ambitious plan for the company” if his campaign is successful. In a letter to AGL shareholders sent ahead of the June 15 meeting to consider the spin-out of the company’s coal fired power assets, Mr Cannon-Brookes stepped up his attack on AGL’s plan to split, telling shareholders their investments in Accel Energy be worth nothing if the company is wrong about the place of its coal-fired power stations in the National Electricity Market. The letter, sent in the wake of the May 6 release of the scheme documents covering the demerger, argues shareholders will receive lower dividends than if the company stays together, and means shareholders could miss out on taking advantage of the business opportunities that flow from Australia’s energy transition. The power giant plans to split off AGL Australia, with its 4.5 million customer base, into a newly listed retail-focused company, with the current AGL to be rebadged Accel Energy. The demerger needs approval from 75% of shares voted in order to proceed, and about half of the company’s register is held by retail investors – generally seen as less likely to vote.
The election on Saturday could prove pivotal: The opposition Labor party is offering tax exemptions on many EVs. A surge in demand saw electric vehicle sales in Australia triple last year, to about 20,665, and hasn’t relented in 2022, according to Behyad Jafari, chief executive officer of the Sydney-based Electric Vehicle Council. Politicians now know better than to dismiss EVs out of hand, and a change in government might push adoption closer to global standards. . Morrison’s federal government has said its $250 million Future Fuels Fund should deliver EV charging infrastructure to 50,000 households and fund 1,000 public-charging stations. But there’s no sign of financial support for EV purchases. Labor is also pledging cash for charging stations on Australian highways, and is going a step further. The party plans to exempt many electric cars from a 5% import tariff, as well as a 47% tax on EVs that are provided by employers to staff for private use. While Morrison once derided EVs for political gain, Labor leader Anthony Albanese is promoting them to try and win votes. Last month, he visited Tritium, a Brisbane-based maker of fast-chargers for EVs. He called the Nasdaq-listed company, which has a market value of about $1.4 billion, a “great Australian success story.” Still, plug-in vehicles make up only 2% of all new-car sales in Australia, industry data show. That’s way behind a global average of 13% in the final three months of 2021, and a tiny fraction of the market share in leading adopters like China, Norway and Sweden. Australia also lacks fuel-efficiency standards that could evict the most polluting vehicles from the market and make more room for EVs. That’s led carmakers to prioritize other nations for new models, meaning those who do switch to electrics face limited choice and need patience — wait times for some deliveries run to months. Even if there isn’t a change in the national government this weekend, political winds are shifting. Last week, Western Australia announced $3500 rebates on EV purchases. That means every Australian state and territory, including the most populous, New South Wales, now has announced some form of EV subsidy, incentive or tax exemption.
Origin Energy has developed a new artificial intelligence tool, which is says will cut out the need for human experts to visit homes and give quotes, by estimating how much power a rooftop system would generate and when customers would break even on their investment. Origin says its new solar assessment tool uses machine learning to calculate the most suitable solar product for a specific home based on satellite images of its roof and the household’s energy consumption patterns. With retail electricity prices expected to rise from July 1, the solar assessment tool lets consumers go online and quickly work out if solar makes economic sense for them, said Duncan Permezel, Origin’s general manager of retail sales and marketing.
And that’s it for this week. And next week, I’ll be talking to to Thoughtworks’ Director of the Data and AI Practice, Dave Colls on why businesses should adopt the creative use of artificial intelligence. And I’ll be talking to Indeed economist Callam Pickering about the latest wages and unemployment figures.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.