Australia’s inflation stays within the RBA’s target, but rate cuts remain on hold as the central bank awaits stronger evidence of easing price pressures
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast site, my own website, 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.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
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 44 in our series for 2024 and today’s date is Friday November 29 .
First I’ll be talking to Jason Baden, the Regional VP Australia New Zealand for F5. With the ongoing (and growing) cyber threats pushing cyber security front-of-mind, Jason can speak about how important it is to invest in continuing education to bolster Australia’s collective IT and cybersecurity skill set, given how rapidly and dramatically the landscape is evolving in the cybersecurity space.
nd I’ll be talking to independent economist Craig James, formerly chief economist of CommSec, about what to expect in the market in the following week
But first, let’s talk to Jason Baden
So what’s happening the news?
Donald Trump’s new tariff pledges send a clear signal that he wants to rewrite the terms of North America’s free-trade pact and follow through with plans to hit China with tariffs, demonstrating to allies and adversaries alike that he is serious about renewing confrontation over a global trading system that he believes costs the U.S. dearly. On his Truth Social social-media platform on Monday, Trump said he would levy tariffs of 25% on imports of all goods from Mexico and Canada, accusing both countries of facilitating illegal immigration and fentanyl abuse in the U.S. The Mexican peso fell 1.4% against the dollar in Asian trading Tuesday, while the Canadian dollar lost 1%. He also promised to levy additional tariffs of 10% on Chinese imports, citing what he says is China’s failure to regulate the chemicals that go into fentanyl. Many Chinese products are already subject to average levies of about 15% after the first phase of the trade war that kicked off in 2018, during Trump’s first term in office. The Chinese yuan shed 0.3% against the greenback in offshore trading. The major question is whether the threats are a negotiating ploy to wring concessions on trade and other policy priorities from U.S. trading partners, or the start of a sustained campaign to reshape global trade and the American economy. Either way, foreign leaders, business executives and economists are bracing for fresh disruption to a world economy that has just emerged from a searing encounter with high inflation and rocketing interest rates, as well as continued friction over trade. “Trump’s statement leaves little doubt that the U.S. stands at the threshold of a new era of trade protectionism,” said Eswar Prasad, professor of economics and trade policy at Cornell University, and a former head of the International Monetary Fund’s China division. “Trump’s clear determination to use tariffs as a tool of international diplomacy will have significant disruptive effects on U.S. and global trade.” A 10% extra tariff on Chinese imports is “an opening salvo,” said Joe Brusuelas, chief economist at global accounting firm RSM. On the campaign trail, Trump said he would hit imports from China with tariffs of 60% or more. Most analysts expect Trump to ratchet up tariffs on Chinese goods, further tighten restrictions on the export of U.S. technology to China. It would curtail Chinese investment in the U.S. in an effort to drastically reduce economic ties between the world’s biggest economies and geopolitical rivals. “A lot of people expect Trump to be a negotiator, so I think this is a beginning of discussions or beginning of negotiations,” Michael Hart, the president of the American Chamber of Commerce in China, said in Beijing Tuesday on the sidelines of a conference on global supply chains.
Internal analysis by the Reserve Bank of Australia has warned an “extreme” trade war between the United States and China would drive down the local share market, push the dollar lower and potentially force the central bank to cut interest rates to prop up the economy. The research, released under Freedom of Information laws, represents the most in-depth insight into the RBA’s view of the economic implications of this month’s US presidential election. Protectionist trade policies were a key feature of the campaign with President-elect Donald Trump pledging to slug imports from China with a 60% tariff and levy duties of 10 to 20% on other countries, including Australia. Republican control of both the House and Senate means Trump is likely to face little resistance from Congress as he forges ahead with plans to reintroduce punitive trade barriers, as well as implement his other priorities including deporting illegal immigrants and cutting the company tax rate to 15% from 21%. The documents released by the RBA show staff analysed the financial market implications of a range of outcomes three weeks before the US presidential election on November 5. Staff assessed that the eventual outcome of the US election – a Republican sweep of the White House and Congress – would have the greatest implications for the Australian economy and local financial markets. Under an “extreme” scenario following a Republican sweep, RBA analysts found Chinese economic growth would slow because of the sharp rise in tariffs. The decline in Chinese activity would have “relatively strong negative implications for Australia given the strength of export trade links”. “In the extreme scenario, weaker export demand, and slower growth would be disinflationary, putting downward pressure on policy rate expectations, government bond yields and the Australian dollar,” the RBA analysis said. “Equity prices would likely decline as earnings expectations are revised down.” Under a moderate scenario where Chinese economic growth slowed but global growth held up, the RBA found the Australian economy would still experience a modest reduction in activity, the dollar and interest rates, but the S&P ASX/200 could move higher via a spillover from US equity markets.
Australia’s headline inflation rate remained well within the Reserve Bank of Australia’s target band in October but the central bank is likely to want more proof price rises have moderated before it will cut interest rates. Last month, the consumer price index was 2.1% higher than a year ago, the Australian Bureau of Statistics reported on Wednesday. That result compared with the 2.3% pace expected by economists and the 2.1% annual increase recorded for September. The trimmed mean, or underlying inflation rate, came in at 3.5%. In September, that measure was 3.2%. The latest data on prices will be scrutinised closely by the RBA and households hoping for an easing of the cost of living squeeze. The RBA governor, Michele Bullock has said the central bank watches the quarterly dataset more closely than the monthly figures. The bank is also wary that the underlying figures are a better guide as to whether inflation is “sustainably” within its target range of 2%-3%. That said, the board may start cutting the cash rate – now at 4.35% – before the trimmed mean pace drops below 3% provided the RBA is confident of a decelerating trend.
The Albanese government’s plan to increase the tax on superannuation accounts worth more than $3 million is unlikely to pass parliament before the federal election, casting doubt on whether the impost will ever be implemented. The bill, which will increase the tax from 15% to 30% from July 1, 2025, is the only significant revenue raising measure the government has proposed and comes as the budget plunges deep into deficit. The government is so pessimistic about securing support for the tax increase that the bill has been left off the logjam of priority legislation it is trying to pass this week. This is the last time parliament will sit for the year and possibly before the election. Even if parliament comes back for two weeks in February as scheduled, unless the government agrees to major changes the super bill has next to no prospect of passing, with every Senate party and crossbencher opposed to it. The super tax hike, which was a broken election promise, was budgeted to raise just $900 million over the first four years but, in its first full year of operation, 2027-28, it was budgeted to raise $2.3 billion and rise steadily beyond that.
Higher spending and lower company tax revenue will push the budget into a deeper deficit this financial year, according to economists at Deloitte who forecast Treasurer Jim Chalmers will have presided over the largest deterioration in government finances on record outside the pandemic. Economic management will be one of the major issues at next year’s federal election amid widespread voter discontent over several years of high interest rates and rapidly rising prices. While Labor has scheduled the 2024-25 federal budget for March 25, the Albanese government may decide it is not in its political interest to proceed with one before the election. If the election is called before that date, the government would not have to reveal four years of deep deficit projections, and the mid-year budget update next month would be Dr Chalmers’ final economic statement before voters head to the polls. Deloitte Access Economics’ half-yearly budget monitor report projects the federal government will post an underlying deficit of $33.5 billion this financial year, worse than Treasury’s forecast of a $28.3 billion deficit at the May budget. “If realised, that would represent a deterioration in the budget bottom line of more than $49.3 billion following the $15.8 billion surplus inked in 2023-24,” Deloitte Access Economics partner Stephen Smith said. “That stunning turnaround in Australia’s fiscal fortunes would be the largest nominal contraction in the underlying cash balance on record, excluding the pandemic-hit budget of 2019-20.” Deloitte expects the budget deficit to be $26.9 billion worse off cumulatively over the four-year forward estimates compared to Treasury’s forecast in May. Over the next four years, Deloitte expects Treasury will collect $16.4 billion less in revenue than forecast this financial year as a softening economy weighs on company tax revenue, while expenses are expected to be $11.2 billion higher as a result of inflation, which increases the cost of indexation. The deficits will be even wider if, as is expected, the Albanese government takes more cost-of-living relief to the next election, including renewing its $300 household electricity bill subsidy.
It’s no wonder that Woolworths and Coles are increasingly pointing to Amazon as proof that there is plenty of competition in the grocery market, despite the supermarket giants still accounting for the vast majority of sales. A deep dive by analysts at Goldman Sachs found Amazon is now the second-largest online retail business in the country after Woolworths. The growth of the US merchant in Australia has loomed large over a debate about the dominance and power of the two big supermarket chains that has raged all year. Leah Weckert, the chief executive of Coles, says Amazon is even selling some groceries – such as pasta, rice and tins of food – at a loss, hoping the low prices will bring in shoppers who will ultimately buy other products. “From our perspective, this is another example of where we are seeing the rise of more competition,” she says. “They’ve been making investments into their robotic facilities in Melbourne and Sydney, which will enable them to have very rapid delivery – in the order of sort of two hours. We would expect that Amazon will make it more competitive as they continue to grow.” Started in Jeff Bezos’ Seattle garage in 1994 as an online bookseller, Amazon is now one of the largest companies in the world, selling everything from cloud computing services to streaming subscriptions. Its attempts to enter the grocery market in the United States stretch back to around 2007. Ten years later, it bought Whole Foods Market, an American supermarket chain, that has more than 500 stores. Still, it remains a small grocery player in the US. Walmart has a 30% market share, followed by supermarket rivals Kroger and Costco. Amazon – including its Whole Foods business – has a 3% stake. In Australia, Amazon has been investing heavily – $11 billion since 2011 and $5 billion just since 2022. It plans to outlay another $1.6 billion by 2026. According to Goldman Sachs analysts, Amazon is likely to generate $6.5 billion in gross merchandise volume – an industry measure that is the total spent by customers before fees, discounts and returns are factored in – in the 12 months to December 31. That is up from $4.5 billion last year. Of most concern to executives at Woolworths and Coles is the rise in grocery item sales. Amazon’s sales of those goods – things such as snacks, confectionary, cereal and beauty products, often the most profitable for supermarkets – are expected to reach $1.3 billion for Amazon this year. Even so, this would still represent just 1% of total supermarket sales. Amazon internally regards Australia as an “emerging” market. Janet Menzies, the company’s country manager, says while the vast majority of Amazon’s customers shop at Woolworths and Coles every week, groceries have become a significant growth opportunity for the business. “We are focused on making sure we have that selection and that we can deliver it really quickly because a lot of those times those [are] items you want quickly,” she says. “They tend to be more ‘speed-sensitive’.” To achieve this, Amazon has built seven fulfilment centres where products are stored, picked and packed when a customer places an order. From there, the orders go to one of the company’s 12 logistics centres or one of its 11 logistics partners. Then they are sorted into delivery routes and delivered to shoppers, either through the company’s own vans or through Amazon Flex, a program where Australians deliver packages in their spare time. By 2026, Amazon wants to have same-day delivery in every major city. Menzies says Amazon expects more growth as customers become more comfortable shopping for groceries online. “There are still a lot of customers who are new,” she says. “A lot of people shopping with us today didn’t shop with us 12 months ago. Typically, people come to us, they’ll buy one thing, and then they’ll discover other categories. Over time, they start to believe that it’s actually a decent way to shop. It turns out that getting cat litter delivered by Amazon is pretty good.”
To address competition, Coles has signed a five-year deal with Microsoft to change the way Australians shop and bolster sales at the supermarket chain, thanks to artificial intelligence. The agreement extends the partnership the pair first struck in 2019 and focuses on a range of digital initiatives, including growing sales and eCommerce offerings, increasing operational efficiency and “enhancing customer experience”. Crucially, it will showcase what is possible with AI, helping thrust the much-hyped technology deeper into the mainstream. Coles intends to use AI to deliver a more personalised and consistent shopping experience. Tools include helping customers locate groceries across a store and create recipes, while helping train staff by providing on-demand learning, rather than bombarding them with training modules when they are hired. This aims to help lift productivity while reducing costs via eliminating wastage by being able to extend the shelf life of chilled meat by stacking it correctly, for example. Coles general manager of tech strategy and transformation Nick Walker says it was only the beginning, and the partnership with Microsoft was aimed at accelerating the development of AI tools.
Two financial backers of the Geelong Football Club have been accused in court documents of orchestrating an elaborate fraud estimated at $14.5 million against one of the nation’s largest service providers for the National Disability Insurance Scheme. Not-for-profit organisation genU has launched Supreme Court action against its former information technology operations manager, Sy Giang Nguyen, and Geelong businessman Keith Greenwood, who owns an office supplies company in Geelong West. Nguyen allegedly colluded with Greenwood to siphon millions of dollars from the registered charity by buying or leasing thousands of IT products on behalf of genU that were never delivered, according to documents filed in the Supreme Court of Victoria. Greenwood’s business, Ryrie Office Machines, is also accused of oversupplying and overcharging for IT hardware and software ordered by Nguyen, who had worked for genU since it was founded in 2016. GenU, which has 5500 staff and provides disability, aged care and employment services, became aware of the alleged fraud in September 2021, when an employee detected allegedly suspicious transactions.
And that’s it for this week. And next week, I’ll be talking to Jonathan Walsh, General Manager APAC, Essendex Australia about the dos and don’ts, the benefits and pitfalls and anything at all to do with SMS marketing for businesses. He can talk about the benefits of SMS for retail commerce and its impact on building customer relationships, targeted campaigns, ROI and how it is becoming a forgotten medium but a powerful tool for engaging with premium customers
And I’ll be talking to AMP Capital chief economist Shane Oliver about what market and economic trends we can expect in 2025.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.
