Central banks are intent on driving the world economy perilously close to a recession.
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 on the Apple podcast store or on 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 34 in our series for 2022 and today’s date is Friday September 23.
First, I’ll be talking to Damian Andreasen, ANZ Country Manager for HiBob, the company behind Bob the HR platform transforming how organisations operate in the modern world of work today. He’ll talk about HiBob’s mission and vision and what it means for Australian business. And I’ll be talking to Indeed economist Callam Pickering about the latest jobs figures.
But now, let’s talk to Damian Andreasen.
Rich economies should hit oil and gas companies with new windfall taxes to provide help for countries suffering from climate change, and people struggling with soaring energy and food bills, UN Secretary General António Guterres said Tuesday. The UN chief accused energy giants of “feasting on hundreds of billions of dollars in subsidies and windfall profits while household budgets shrink and our planet burns.” Guterres’ comments, at the UN General Assembly in New York, come on the heels of a European Union proposal to introduce a windfall tax on oil, gas and coal companies, many of which have reported record-high profits as Russia’s war in Ukraine and an energy crunch send prices soaring. The European Commission is proposing that EU states take a 33% share of the companies’ surplus profits. The United Kingdom introduced a 25% windfall tax earlier this year to provide relief for people struggling with their energy bills but newly installed Prime Minister Liz Truss has said she won’t extend it to pay for a much bigger program of subsidies this winter and next . US President Joe Biden’s administration mulled the idea in the summer but it gained little momentum. “Today, I am calling on all developed economies to tax the windfall profits of fossil fuel companies,” Guterres told the Assembly. “Those funds should be redirected in two ways: to countries suffering loss and damage caused by the climate crisis, and to people struggling with rising food and energy prices.” His comments also come as parts of the world are battered by extreme weather events supercharged by the human-induced climate crisis. More than 1,500 people died in Pakistan over three months of extreme monsoonal rain that scientists have linked to climate change. More than 300 people have died in floods in Nigeria this year, disaster management authorities there say. Typhoons and hurricanes have brought floods to Puerto Rico, the Dominican Republic and Japan this week. Drought is impacting vast swathes of the United States, China and Europe. Guterres warned that a “winter of global discontent is on the horizon,” with inequality “exploding” and the cost-of-living crisis “raging” while the planet burns.
Mark Zuckerberg’s pivot into the metaverse has cost him dearly in the real world. Even in a rough year for just about every US tech titan, the wealth erased from the chief executive of Meta Platforms stands out. His fortune has been cut in half and then some, dropping by $US71 billion ($105 billion) this year, the most among the ultra-rich tracked by the Bloomberg Billionaires Index. At $US55.9 billion, his net worth ranks 20th among global billionaires, his lowest spot since 2014 and behind three Waltons and two members of the Koch family. It was less than two years ago when Mr Zuckerberg, 38, was worth $US106 billion and among an elite group of global billionaires, with only Jeff Bezos and Bill Gates commanding bigger fortunes. His wealth swelled to a peak of $US142 billion in September last year, when the company’s shares reached as high as $US382. The following month, Mr Zuckerberg introduced Meta and changed the company’s name from Facebook. And it has been largely downhill from there, as the company struggles to find its footing in the tech universe. Its recent earnings reports have been dismal. It started in February when the company revealed no growth in monthly Facebook users, triggering a historic collapse in its stock price which slashed Mr Zuckerberg’s fortune by $US31 billion – among the biggest one-day declines in wealth ever. Other issues include Instagram’s bet on Reels, its answer to TikTok’s short-form video platform, even though it is worth less in advertising revenue; while the industry overall has been affected by lower marketing spending because of concerns over an economic slowdown. The stock is also being dragged down by the company’s investments in the metaverse, said Laura Martin, senior internet analyst at Needham & Co. Mr Zuckerberg said he expected the project would lose “significant” amounts of money in the next three to five years
Central banks are intent on driving the world economy perilously close to a recession. Late to see the worst inflation in four decades coming, and then slow to crack down on it, the Federal Reserve and its peers around the globe now make no secret about their determination to win the fight against soaring prices — even at the cost of seeing their economies expand more slowly or even shrink. About 90 central banks have raised interest rates this year, and half of them have hiked by at least 75 basis points in one shot. Many did so more than once, in what Bank of America Corp. chief economist Ethan Harris labels “a competition to see who can hike faster.” The result is the broadest tightening of monetary policy for 15 years — a decisive departure from the cheap-money era ushered in by the 2008 financial crisis, which many economists and investors had come to view as the new normal. The current quarter will see the biggest rate hikes by major central banks since 1980, according to JPMorgan Chase & Co., and it won’t stop there. This week alone, the Fed is set to lift its key rate by 75 basis points for a third time, with some calling for a full percentage point salvo after US inflation again topped 8% in August. The Bank of England is predicted to boost its benchmark by 50 basis points, and hikes are also expected in Indonesia, Norway, the Philippines, Sweden, and Switzerland, among others. As they slam on the brakes, policymakers are starting to lace their language with gloom in a public acknowledgement that the higher they raise rates to quell inflation, the bigger the risk they harm growth and employment. There’s little doubt that the monetary medicine will hurt. The question is, how much? Analysts at BlackRock Inc. reckon that bringing inflation back to the Fed’s 2% goal would mean a deep recession and 3 million more unemployed, and hitting the ECB’s target would require an even bigger contraction. Adding to the uncertainty is the lag before rate hikes affect the economy, in addition to the makeup of today’s inflation, much of which stems from energy and other supply shocks that central bankers can’t control. Last week’s higher-than-expected US inflation number for August sent the stock market into its steepest dive in more than two years, driven by bets on tighter Fed policy. Billionaire hedge fund manager Ray Dalio sees the prospect of a slump of more than 20% on equity markets as rates continue to rise.
A synchronised economic rebound from the pandemic is set to become a synchronised slowdown as surging inflation sets a speed limit for many countries, requiring aggressive interest rate hikes, while Europe’s energy crisis and China’s repeated Covid-19 lockdowns are also major obstacles to growth. Advanced economies are set to shrink next year, despite some signs of resilience, according to Barclays. “The next few quarters are likely to be very challenging for the global economy, but much of the bad news now seems out of the way, reducing the chance of new downside tail risks,” says Barclays’ global chairman of research, Ajay Rajadhyaksha. He remains bearish on risk assets and overweight longer fixed income over global equities. Before key central bank meetings this week – expected to see further aggressive interest rate hikes announced in the US and Britain – he warns that high inflation and tight labour markets will prompt more rate hikes in advanced economies through 2022, and Russia’s suspension of gas flows to Europe could combine with interest rates hikes to trigger a deep recession in early 2023.
The Reserve Bank will tip the Australian economy into recession and cause a “material” downturn in property prices if it lifts rates as aggressively as markets expect, Barrenjoey chief economist Jo Masters says. The RBA has lifted rates by 2.25 percentage points since May, and markets expect the cash rate to reach 3.3% by the end of the year, before peaking at 3.9% in April next year. RBA governor Philip Lowe said last week there was a “narrow path to a soft landing” for the Australian economy, which would be difficult to stay on if global economic conditions deteriorated. Ms Masters said on Monday the central bank will cause a recession if it raised rates as aggressively as markets expect.
The Reserve Bank has warned that rising interest rates will impact both home prices and construction activity, but it does not expect this to affect the overall financial system. The rapid series of rate hikes this year suggest an at least 15% slump in house prices, RBA head of domestic markets Jonathan Kearns said.
A massive jump in insurance premiums is pushing up the cost of living for ordinary Australians, but the higher premiums are not translating into bigger profits for insurers because heavy rains have blown out their costs, new research has revealed. Decision Inc analysed data from the Australian Prudential Regulation Authority and Bureau of Meteorology and found a correlation between an increase in above-average rainfall and an increase in gross written premiums from insurers. The data showed that gross premiums have increased from $8.3 billion in 2019 to $10.4 billion last year, in line with rainfall increasing from 102,000 millimetres in 2019 to 172,000 millimetres last year. But far from insurers profiting from higher premiums, the profitability of the general insurance segment declined during the period thanks to the increasing prevalence of catastrophes. The sector recovered from a $144 million loss at the height of the pandemic in 2020 to end last year $140 million in the black, but for this calendar year to date the industry is back in the red to the tune of $11 million, the research found. The data showed that paid claims have increased from 1901 in 2017 to 4801 in 2020 and 4509 last year. Aiden Heke, chief executive of Decision Inc Australia, said the need for insurers to manage their own risks was creating a big gap between the volume of premiums and their profits.
Billionaire Andrew Forrest’s Fortescue Metals will spend $US6.2 billion ($9.2 billion) on renewable energy projects to save over $1 billion in costs per year and hit its 2030 net-zero emissions target. Mr Forrest travelled to New York to make the announcement at a CEO roundtable as part of US President Joe Biden’s First Movers Coalition and the United Nations Global Compact. Mr Forrest said Fortescue’s investment would take place between 2024 and 2028 and reduce net operating cost savings for Fortescue of $US818 million per year from 2030, at prevailing market prices for diesel, gas and Australian carbon credits. The company estimates it will create cost savings of $US3 billion by 2030, yielding returns on the new investment by 2034.
Iron ore magnate Andrew Forrest has blasted fellow billionaire Elon Musk for dismissing hydrogen as a promising source of “green energy”, as the Fortescue chairman laid out an ambitious new plan to completely remove fossil fuels from Fortescue’s production by 2030. In New York City to tout his company’s new $US6.2bn investment plan to fully replace diesel and gas with solar and wind energy within eight years, Mr Forrest took a swipe at Mr Musk’s disdain for “green hydrogen”, whose development Fortescue has advocated and invested heavily in. Mr Forrest, who announced his “decarbonisation” plan in a closed-door session with the United Nations Secretary General on Monday, said Mr Musk was “a good guy but has a business model which depends only on batteries, and hydro fuel cells harm that business model”. “He should get out and ask himself ‘am I really a climate avenger or just a businessman?’; if he knocks hydrogen then we know he’s just in it for a buck,” Mr Forrest said. Mr Musk, one of the world’s richest men and chief executive of electric car maker Tesla, in May publicly slammed hydrogen fuel cells as “the most dumb thing I could possibly imagine for energy storage.”
The Finance Sector Union said National Australia Bank staff were unhappy with the “meagre” pay deal being offered and would start industrial action, which has not been taken at the bank for more than 20 years. The bank, which employs 32,000 people, is currently in bargaining discussions with the union as it negotiates a new enterprise agreement for staff. It has offered employees earning less than $100,000 annually a 5% rise in the first year, and a 4% t rise in the second year. Those earning more than $100,000 have been offered a 4.5% increase followed by 3.5%. As part of NAB’s proposal, the annual review of more senior staff would continue to be managed outside the enterprise agreement, as it has been for the past decade. The union says this means about 60% of the workforce would have no certainty of a pay increase. The company has also proposed an extra week of paid leave each year, dubbed ‘You Leave’, for employees who have met their requirements for annual leave, rostered days off and long service leave within a financial year. The union wants a 6% pay rise for all employees, and argued that its members, including those in very senior roles, were unhappy with the position put forward by NAB because it represents a pay cut in real terms for employees and does not keep pace with inflation. In July, federal Treasurer Jim Chalmers said he expected inflation would peak at an annual rate of 7.75% by the December quarter of 2022 and fall gradually, allowing wage growth to begin providing workers with real salary increases by the 2023-24 fiscal year.
Albemarle boss Kent Masters says it will be hard for Australia to make the leap from mining key ingredients to making batteries for electric vehicles. That’s despite the company having just built one of the world’s biggest and most advanced lithium hydroxide plants – estimated to have cost more than $2 billion – at an industrial park south of Perth. The chairman and chief executive of the US-based global battery minerals giant said Australia was coming from a long way behind and faced an uphill battle to ever make batteries in the absence of a carmaking industry. Tesla and Technology Council of Australia chairman Robyn Denholm said last week that Australia was missing out on adding value to its mineral resources and urged the nation to establish infrastructure to manufacture battery cells and electric vehicles. Mr Masters said there was a power struggle going on between carmakers and battery makers as demand for electric vehicles accelerated around the world, and carmakers were having a big say in where batteries were made. Albemarle has a 49% stake alongside China’s Tianqi in the world’s best-operating hard rock lithium mine at Greenbushes in WA’s south-west, and a 50% share alongside MinRes in the potentially huge Wodgina mine in Pilbara.
The Albanese government should not reward big polluters by giving them new safeguard mechanism credits that do not equate to a direct environmental improvement, says the company that helped draft Labor’s climate policy before the May election. As Energy Minister Chris Bowen’s department reviews the safeguard mechanism, introduced by the Coalition government in 2016, RepuTex warned Australia could miss its 2030 targets if carbon credits under the scheme did not reflect “real and additional” abatement. Under the existing safeguard mechanisms which cover 215 of Australia’s biggest polluters who emit more than 100,000 tonnes of carbon each year, facilities have been able to change their baselines and increase their pollution. Labor promised during the federal election to tighten baselines under the safeguard mechanism to give the scheme much-needed “teeth” and force big polluters to cut their emissions. But the creation of safeguard mechanism credits (SMCs), first proposed by former energy minister Angus Taylor, has some concerned about how they will relate to existing Australian Carbon Credit Units (ACCUs). In its submission to the Department of Climate Change, Energy, the Environment and Water, RepuTex said the option to give free SMCs to companies whose emissions were below an “industry average” equated to a financial subsidy.
The ranks of the very rich are shrinking: the total number of high net worth individuals in the local market took a rare step backwards over the last year, dropping to 625,00 from 635,000. Shocked by mounting losses in the sharemarket, the first priority of high net worth individuals now is to protect their portfolios though they are increasingly reluctant to take advice from experts. According to the annual Investment Trends survey of the nation’s richest, sharemarket investments remain the biggest exposure though there are growing interests in new-style alternatives and private equity assets are increasingly popular. The survey, produced for the investment platform Praemium, found that total assets under control among wealthy investors retraced in line with parallel falls in sharemarkets, bond markets and property in 2022. But HNWs continue to dominate the nation’s private wealth with around $2.8 trillion in assets.
The Federal Court has fined wealth giant AMP $14.6 million for charging 1500 customers for financial advice they were unable to receive, in a win for the Australian Securities and Investments Commission. Justice Mark Moshinsky ordered AMP to pay the penalty, which represents about 16% of the troubled wealth manager’s pre-tax profit for the half year to June 30. The fine was well above expectations and the $4.6 million penalty understood to be advocated by AMP. Still, it fell below the $17.5 million penalty sought by the corporate regulator. ASIC sued AMP in July last year, alleging that its subsidiaries had deducted about $600,000 in advice fees from 1540 customers’ superannuation accounts even though the company was aware the customers had left the fund and could no longer get access to that advice. The conduct occurred between July 2015 and September 2018, just ahead of the damning Hayne royal commission, which found sector-wide instances of charging “fees for no service” and accused AMP of criminal wrongdoing. The regulator argued that AMP contravened its obligations as a financial services licence holder to act “efficiently, honestly and fairly”.
Almost 2.2 million Australians are millionaires after soaring asset prices pushed another 390,000 adults onto the top rungs of the global wealth ladder according to a report by Credit Suisse that says Australians are the richest people in the world. The figure probably marks a near-term peak for Australia, as falling property prices are poised to drag on Australians’ paper wealth this year. The median Australian adult finished 2021 with a net worth of $US273,900, making them richer than the comparable resident of any other country, according to Credit Suisse’s annual global wealth report. The next wealthiest jurisdictions were Belgium, New Zealand and Hong Kong. Soaring share and property prices pushed median wealth per Australian adult $US28,450 higher in 2021. The only country whose citizens’ fortunes rose by more than that was New Zealand, where median wealth jumped by $US57,920.
And that’s it for this week. And next week, I’ll be talking to Martin Fitz, the CEO of PureProfile to explore the e-commerce habits of Australians and what retailers should be doing about it. And I’ll be talking to KPMG economist Sarah Hunter about what’s ahead for the RBA and the economy.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.