What is happening with the Australian economy?
Posted Mon 18 Nov 2019,
Updated Tue 19 Nov 2019
Expires: Tuesday 15 October
What’s happening to the Australian economy? Despite record low interest rates, low unemployment, booming exports and high government spending, the economy is barely growing.
ALAN KOHLER, REPORTER: There are things going on in the Australian economy now that are not only unprecedented, they are downright weird, not in any textbooks.
As you can see, the economy is barely growing, flirting with recession.
To achieve even this level of insipid growth, the pedal is flat to the board. There is record low interest rates, record levels of debt, booming exports, and huge government spending.
So, there’s plenty of wood and kero going on to the fire but it is not getting hot. In fact, it is cooling and this is not supposed to happen and when the pie isn’t growing much, people miss out.
Now in this series, you won’t just hear from me, but also some key players in the economy and I don’t just mean economists and boffins, I mean you and people like you – the real key players.
It’s a gig economy, and just about everybody’s got a side hustle.
JOEL KAITHAVELIL: Alan?
ALAN KOHLER: Yep.
JOEL KAITHAVELIL: Hop in!
So I’m 26. I’m living at home with mum and dad and I drive an Uber just for the flexibility that it provides and the extra income that I’m able to earn from it.
ALAN KOHLER: You have got a day job, have you?
JOEL KAITHAVELIL: Yeah.
ALAN KOHLER: What do you do?
JOEL KAITHAVELIL: I work in financial services as an associate advisor.
ALAN KOHLER: So Joel, how long have you been driving Ubers?
JOEL KAITHAVELIL: On and off I’ve been driving for about three years.
ALAN KOHLER: It does sound like as more and more people drive, the money you can make from it is coming down.
JOEL KAITHAVELIL: When I first started I was earning a couple of hundred dollars pretty easily just by doing my four or five hours on the weekend.
Obviously now it’s got a bit harder to match that level of income.
I think it definitely does assist in people’s day-to-day lives. It definitely gives people an ability to catch up on anything that they might have lost in the past couple of years, in terms of perhaps wage growth.
ALAN KOHLER: For millennials like Joel Kaithavelil, and indeed for all of us, the economy is just not normal.
PROF. IAN HARPER, MELBOURNE BUSINESS SCHOOL: We’ve had periods in the past where inflation has been low but growth has been fine.
But for us to have low interest rates, low growth, low inflation all at the same time, while the labour market is strong – that is to say unemployment is also low – that is pretty unusual.
GERARD MINACK, ECONOMIST: Well, arguably it is something that we have almost never seen before.
I mean, people do say it’s dangerous to say this time it is different, but in many respects it is quite different.
ALAN KOHLER: Real household income has been stagnant since the GFC, even though our national output has been rising.
When income is flat, prices don’t go up. So, inflation declines. The Reserve Bank is trying to combat that with record low interest rates but it’s just not working.
When the Reserve Bank meets to decide interest rate movements, Ian Harper is in the room.
He’s agreed to give 7.30 his own personal view on why cutting interest rates towards zero is no longer working.
IAN HARPER: Normally you’d expect what that would do is to encourage people to consume more and to invest more.
Now, neither of those things are happening in the way that they have done in the past.
Precisely why, unless you just sort of wave your hand and say look, it is all about uncertainty, we’re not so sure, there is something in that, we really don’t know the answer to that question.
So what is true is that both here in Australia and elsewhere, economies aren’t responding to easier monetary conditions in the way that was true in the past.
ALAN KOHLER: For the average Australian household, a slowing economy means tightening belts, and sticking to a budget.
(Aleeshia Bartolone playing Ring a Ring o’ Rosy)
ALEESHIA BARTOLONE: I’m Aleeshia Bartolone and I live here in Gosnells, WA with my partner, Paul.
The mortgage for this house was around $330,000 four years ago. A year after we bought the house, we had Lachlan and then a year later, we had Hunter.
It was quite hard at the beginning in our financial situation, having kids so quickly after the mortgage.
With our budget, like when we had the kids and like, money was a bit tight, things that we cut out first would be going out for dinner.
We are not fancy eaters. The kids, you know, half the time they don’t eat what you cook anyway, except the pasta. So pasta is a cheap meal. It is easy, I come from an Italian background.
I am a manager of a cafe in one of the big shopping centres in Perth and Paul works away FIFO (fly-in, fly-out) up in the mines.
I wasn’t eligible for maternity leave through my actual workplace.
Paul changed jobs pretty quickly as well, since moving here. Then he went into the mines, which again, is still a casual position, has been for the last three and a half years.
First, when we bought the property, they did want $355,000. We got it down to $338,000. We had it valued by an real estate agent only a couple of months ago and he said the highest we would get is around $280,000.
So it has dropped quite a lot. There is always going to be peaks and troughs. We’re in the trough but I think it will start to pick up again. It has to.
ALAN KOHLER: There’s a nervousness about the housing market, job security and wages that’s playing out across the country.
What is your view about the current state of the economy? What is your data showing?
MATT COMYN, CEO COMMONWEALTH BANK: From late last year, we started to see a slowdown.
The housing market, as the house prices fell, I think certainly consumer confidence was starting to take a hit during that period.
We saw a slowdown in consumption.
Wage and income growth has been low for some period of time but, of course, what the Australian economy needs is a pick-up in income growth. We can see that. We can see the importance of that.
ALAN KOHLER: Every hour about 80,000 Australians will use a Commonwealth Bank credit card. This means the bank and its CEO, Matt Comyn, know what Australians are spending.
MATT COMYN: We combine that with Google searches where in the next minute 60,000 Google searches will occur and we bring all of that together and what we saw is across a number of different areas, we saw that post the tax cuts actually, our customers increased their spending by 28 per cent.
And housing, of course, has remained resilient. I think in a couple of other areas, or categories, sentiment has weakened and we think it’s the combination of both the global backdrop, particularly the US-China trade war I think is weighing on sentiment.
I do think that having the impact of multiple rate cuts, the official cash rate coming down in pretty quick succession has also weighed on sentiment.
GERARD MINACK: That is now a worse trend than we saw even in the early 1990s recession.
We’ve had a sneaky little recession in disposable income over the last six or seven years.
ANDREW MCDONALD, SHOEMAKER: I’m Andrew McDonald. I’m a shoe maker and I have been making shoes for 30 years now.
I think at the moment business is going through a soft patch, or a rocky patch. I think the first thing that is on people’s minds is the possibility of a recession.
I’d say that the drop off this month has been about 30 per cent. People are reluctant to spend money on things that they may see as not necessary.
I have been in the Strand Arcade for eight years now. I think it is affecting all businesses in retail.
I have quite close contact to the community of retailers here in the Strand Arcade and they are all saying the same thing whether it is Nino, who runs the restaurant, it’s Alan, who does the repairs – we’re all affected in some way and they are basically saying the same thing – that sales are down. People are not spending money.
I think there is a sense of collective nervousness. Retailers are feeling uncertain. I don’t think they know what’s happening.
ALAN KOHLER: That is small business but what about the top end of town?
Even in a downturn, Australians will always shell out for some products even if they are on a budget, and one of them is soft drink.
This Coca-Cola Amatil warehouse in Melbourne supplies the fizz for Victoria and Tasmania.
Leading up to Christmas, it sends out a quarter of million cases every day. The company invests about $300 million in Australia each year on factories, warehouses and trucks but even with that, growth is hard to come by.
ALISON WATKINS, GROUP MANAGING DIRECTOR, COCO-COLA AMATIL: I think it is pretty challenging for any of us to be finding growth at the moment.
We’re still growing but it’s pretty hard won growth, I would say.
If we look at the stats, it tells us that a lot of households are in real terms at least, worse off than they were, say, 10 years ago and I think that people are just not seeing, as they look forward, any reasons for that to change.
ALAN KOHLER: Do you think that the rate cuts that the Reserve Bank has been making this year have had the perverse effect of scaring people?
ALISON WATKINS: I think there is an element of that and this sort of sense of battening down the hatches, I think, it does reinforce from the consumer point of view that, boy, things are looking a little bit, you know, a little bit dire.
ALAN KOHLER: For millennials like Joel Kaithavelil, what we’re seeing in the economy means the great Australian dream of owning your own home may always be just that – a dream.
JOEL KAITHAVELIL: Goals such as buying a house, or buying an apartment would be something that’s a bit daunting to people of my generation, I guess.
I think there are times when I almost feel as if it’s, you know, a lifetime away or it is going to take quite a long time for me to get there but you are always hearing news about property prices going high and property prices going low. So, I think when there is a lot of confusion about what’s going to happen, I think it’s a bit, yeah, it is a bit scary at times.
ALAN KOHLER: The Australian economy seems to be stuck in low gear, no matter what we do.
JOEL KAITHAVELIL: See ya, mate.
ALAN KOHLER: One reason is the amount of debt we’re in and we’ll take a look at that tomorrow night.