National diversified developer Fortis has officially launched Crest &amp; Walker, its latest Brisbane apartment development, with construction now underway on the 20-storey Newstead project.

Award-winning builder BINAH has commenced construction on the Bureau^Proberts-designed building, which will deliver a limited collection of 65 two and three-bedroom apartments on Kyabra Street.

[smartcode_project:default project_id=145922 project_image_fid=373556]

The project marks Fortis' fourth active residential development in Brisbane, following River House, which is nearing completion, alongside projects in New Farm and Hamilton as the national developer continues to expand its South East Queensland pipeline.

Fortis General Manager – Development Queensland Dan Boman said Crest &amp; Walker reflects the developer's long-term commitment to delivering design-led residential projects in Brisbane's established inner-city suburbs.

"We're proud to be strengthening our presence in Brisbane with Crest &amp; Walker, particularly in such a sought-after lifestyle destination as Newstead," Boman said.

"Every Fortis project is shaped by its context, and we approach each one with the respect and care it deserves.

"Our focus is always on creating places that feel connected to their neighbourhood and elevate the everyday experience for residents. Newstead continues to evolve as one of Brisbane's most sought-after urban communities, and Crest &amp; Walker reflects our ambition to contribute meaningfully to that story."

[smartcode_project:default project_id=145922 project_image_fid=373559]

Positioned between Gasworks Plaza and James Street, <a href="https://www.apartments.com.au/new-apartments/crest-walker-newstead-12-kyabra-street-newstead-qld-4006">Crest &amp; Walker</a> has been designed as a boutique residential address offering privacy and generous living spaces within one of Brisbane's most established lifestyle precincts.

The building features a contemporary brick podium softened by integrated landscaping, while the upper levels are characterised by restrained architecture and enduring materiality. Interiors have been designed to maximise natural light, acoustic performance and long-term liveability.

[smartcode_project:default project_id=145922 project_image_fid=373583]

Residences comprise spacious two and three-bedroom floorplans, with two-bedroom apartments priced from $1.55 million and three-bedroom, half-floor residences from $3.95 million.

Residents will have access to a wellness-focused rooftop featuring a swimming pool, sauna, steam room, landscaped dining spaces and outdoor lounge areas overlooking Newstead and the Brisbane CBD.

[smartcode_project:default project_id=145922 project_image_fid=373571]

Sales are being managed by Slaite Projects, with Fortis expecting strong demand from owner-occupiers seeking a high-quality, design-focused apartment in one of Brisbane's most tightly held inner-city suburbs.

Completion of Crest &amp; Walker is slated for late 2028.

[smartcode_project_cta:default project_id=145922]

Joel Robinson

Fortis expands Brisbane pipeline with launch of Crest & Walker in Newstead

The enormity of delivering a true skyscraper in Australia's new development market is often overlooked.

It has taken the best part of a decade since plans for Chevron One were first unveiled, but the 52-storey tower is now complete, with residents collecting their keys and moving into what has become one of the Gold Coast's most recognisable new landmarks.

Rising 127 metres above Chevron Island, Chevron One stands almost twice as high as any other building on the island. Its scale places it alongside the trio of towers at Jewel, arguably the last truly significant addition to the central Gold Coast skyline when they were completed around six years ago.

While there are several developments underway around a similar height to Chevron One, they are more concentrated within clusters of the highest towers in the city. The fact Chevron One sits within a developing precinct, looking back at the other high-rise developments in Surfers Paradise and Broadbeach, makes it a different proposition altogether. It will certainly become a reference point on the Gold Coast skyline.

[smartcode_project:default project_id=6515 project_image_fid=68833]

Developer Bensons Property Group is behind the 52-storey tower, which has just shy of 250 apartments, along with an exhaustive list of resident amenity spread across what is the largest development site ever assembled on Chevron Island.

The tower has been the talk of the town for years, says Ray White Projects Gold Coast agent Caitlin Rosenboom, who is selling the remaining apartments.

"People have been watching Chevron One go up for years," Rosenboom says, adding that many prospective buyers have been surprised by the scale of the views once they step inside.

"It's only when they walk through a completed apartment that they truly understand the position of the building," Rosenboom says.

"The views are jaw-dropping. Whether you're looking east over the ocean, across Surfers Paradise, along the river systems or out to the hinterland, every level offers something different but equally impressive."

[smartcode_project:default project_id=6515 project_image_fid=360215]

One of Chevron One's defining advantages is its location on the eastern side of Chevron Island on Stanhill Drive, a position which protects the views forever.

"There's only one row of houses between Chevron One and the water, and the height restrictions along the river means views from Chevron One can never be built out,"&nbsp;Rosenboom says.

While new apartment developments continue to emerge across the Gold Coast, Rosenboom says opportunities to secure a completed apartment with this level of outlook are becoming increasingly rare.

"The size of the site is something that would be incredibly difficult to replicate today," she says.

"That's allowed Chevron One to deliver the sort of amenity, open space and resident facilities that very few projects can offer. There are not many completed apartment buildings on the Gold Coast right now that can compete with the combination of scale, quality and amenity."

[smartcode_project:default project_id=6515 project_image_fid=68839]

There's around 2,000 sqm of amenity solely for the use of residents of Chevron One. Club One features a uniquely shaped swimming pool that mirrors the footprint of the building itself, set within a extensively landscaped gardens. There's also an indoor pool and spa, a fully equipped gym with a Pilates room, a yoga garden, a bookable private dining area and lounge that can host up to 30 people, and a 24-hour concierge service.

As for the buyers, Rosenboom is fielding enquiry from everywhere: Sydneysiders and Melburnians looking at the new and off-the-plan market following the changes in the Federal Budget, as well as those looking to relocate, through to South East Queenslanders seeking either a permanent home or a weekender bolthole.

"The Gold Coast lifestyle continues to resonate with people relocating from the southern states, and when they see the views and the quality of what's been delivered at Chevron One, it becomes very easy for them to understand the appeal," Rosenboom says.

A diverse mix of one, two and three-bedroom apartments remain available, with each offering "something a little different", be it the orientation and views, configuration, or level, to suit a wide variety of buyers.

The remaining apartments are ready to inspect in person, by appointment.

[smartcode_project_cta:default project_id=6515]

A decade in the making: Residents to move into Chevron One as construction wraps up

A general rule of thumb in new apartment developments is that the penthouses get the rooftop.

It's a formula that's become commonplace across Australia's apartment market. Residents might have access to a pool, gym or barbecue facilities on a dedicated lower level, but the most desirable outdoor spaces are typically reserved for the highest-priced homes at the top of the building.

<a href="https://www.apartments.com.au/developers/sherpa-property-group">Sherpa Property Group</a> has taken the opposite approach.

Rather than dedicating the rooftop to a handful of buyers, the Gold Coast developer has made it the centrepiece of its Flourish collection, creating expansive shared spaces from the best vantage point in the building.

The philosophy has reached its most ambitious expression at <a href="https://www.apartments.com.au/new-apartments/flourish-soleira-palm-beach-1150-1160-gold-coast-highway-palm-beach-qld-4221">Flourish Soleira</a> in Palm Beach, where two rooftop precincts connected by a skybridge will deliver one of the most extensive lifestyle offerings seen in a residential apartment project on the Gold Coast.

[smartcode_project:default project_id=150017 project_image_fid=374053]

"We're seeing a clear move toward developments that offer more than just an apartment," Sherpa Group founder Christie Leet said.

"People want spaces that support how they actually live, whether that's working from home, staying active, or spending time with family and friends.

"That's where amenity becomes critical. It's not just about what's included, but how those spaces are designed to be used every day."

[smartcode_project:default project_id=150017 project_image_fid=374052]

The breadth of amenity has already attracted buyers across multiple demographics. Younger first home buyers have been drawn to Soleira's one-bedroom apartments, a product rarely delivered in Palm Beach, while families have responded to practical inclusions such as the shallow children's pool adjoining the main lap pool and the extensive communal recreation areas.

Instead of a single rooftop, Soleira delivers two distinct lifestyle zones.

[smartcode_project:default project_id=150017 project_image_fid=372547]

The southern rooftop has been dedicated to wellness, featuring a gym, yoga and Pilates studio, work-from-home facilities, a wellness centre, spa, and hot and cold plunge pools.

The northern rooftop focuses on recreation and entertaining, incorporating a heated resort-style pool, private dining rooms, pizza ovens, barbecues, a golf simulator, children's recreation areas, and what is expected to be the Gold Coast's first rooftop basketball court, which will also double as a squash court.

[smartcode_project:default project_id=150017 project_image_fid=374054]

Beyond the rooftops, Soleira will introduce 1,500 sqm of curated retail beneath the towers, creating one of Palm Beach's first genuinely mixed-use lifestyle precincts where cafés, restaurants and convenience retail become part of residents' everyday lives.

Sherpa has also retained management rights across the development, allowing it to oversee the long-term operation of the building through a 24-hour concierge model. The developer is also exploring additional revenue streams within the precinct aimed at helping offset ongoing body corporate costs for residents.

[smartcode_project:default project_id=150017 project_image_fid=370962]

While Soleira is the largest project Sherpa has delivered, the rooftop-first philosophy has been evolving for several years.

It began with <a href="https://www.apartments.com.au/new-apartments/amargo-6-12-sixth-avenue-palm-beach-qld-4221">Flourish Amargo</a>, the first project released under the Flourish brand. Rather than competing at the ultra-luxury end of the market with oversized half-floor and full-floor residences, Sherpa focused on creating lifestyle-driven apartments supported by resort-style shared spaces.

Amargo introduced more than 800 sqm of rooftop amenity, combining wellness facilities, heated pools, entertaining areas, cabanas, pizza ovens and private dining spaces into what was designed as an extension of residents' homes rather than a facility used only occasionally.

[smartcode_project:default project_id=146527 project_image_fid=366550]

That approach continued with Flourish Oasis, where the same amenity-led philosophy was refined into a more boutique development. Strong demand from Sherpa's growing VIP database saw much of the project sold before it reached the broader market, reinforcing buyer appetite for apartment communities centred around shared lifestyle experiences.

Flourish Amargo is slated for completion mid-way-through next year, with Oasis to be delivered by late 2027. Flourish Soleira is expected to complete in 2030.

[smartcode_project_cta:default project_id=150017]

Sherpa takes amenity to the sky as Flourish Soleira captures booming Palm Beach demand

As apartment living continues to evolve across Sydney's growth corridors, the quality and distribution of shared spaces is increasingly shaping how residents experience home. Rather than functioning as add-ons, amenities are being embedded into the daily rhythm of a building, supporting everything from quiet retreat to social interaction, often within a single vertical community.

At <a href="https://www.apartments.com.au/new-apartments/aeris-melrose-park-nursery-street-melrose-park-nsw-2114">Aeris</a> in Melrose Park, this approach is resolved through a layered amenity offering that unfolds from ground level through to its upper podium. Developed by <a href="https://www.apartments.com.au/developers/sekisui-house-australia">Sekisui House Australia</a> in partnership with Hankyu Hanshin Properties, the project introduces 468 apartments across two towers and a mid-rise building, positioned at the highest point of the broader masterplan.

[smartcode_project:default project_id=426 project_image_fid=359199]

The amenity experience begins at street level, where two courtyards sit within a landscaped setting that connects residents to the wider network of parks and green spaces. These green spaces are not isolated pockets but part of a wider pedestrian network that links Aeris to the surrounding <a href="https://www.apartments.com.au/developments/melrose-park-nsw-2114">Melrose Park</a> precinct, including Central Park, future schools, and the Town Centre opening in July 2026. The result is a transition that moves from public to private without abrupt boundaries, allowing residents to pass through shaded, tree-lined environments before reaching the building itself.

Moving upward, the focus shifts to the level five podium, where the primary communal facilities are concentrated. This space brings together a 16-metre swimming pool, outdoor seating areas, and a communal BBQ zone arranged to take advantage of elevated outlooks. Seating is positioned beneath pergolas, creating pockets of shade that extend the usability of the space throughout the day. The pool edge aligns with views toward the wider district, reinforcing the sense of elevation that defines the project’s positioning.

In the adjacent building, this is complemented by quieter, more contemplative spaces, including an outdoor cinema set within the same level. Positioned to operate primarily in the evening, it introduces a different tempo to the shared environment, shifting from daytime activity to after-hours use without requiring separate zones.

[smartcode_project:default project_id=426 project_image_fid=360299]

The podium also accommodates an intimate private resident gym. Located on the lower levels, it gives residents convenient access to fitness facilities without leaving the building.

Above, the elevated podium sky deck extends the amenity offering, providing additional open-air spaces with elevated outlooks across the surrounding landscape. While more restrained in program, this upper level reinforces the project’s vertical progression, from ground-level greenery to elevated outlook, allowing residents to move between distinct spatial conditions within a single address.

This distribution of amenities reflects a deliberate response to how residents use space across the day. Sekisui House Australia Sales and Marketing Director Peter Kalaf points to the role these shared areas play in shaping buyer demand. Aeris has been conceived as more than a collection of apartments, with the podium pool, gym and outdoor cinema forming part of a broader lifestyle offering that extends the home beyond each individual residence.

[smartcode_project:default project_id=426 project_image_fid=360300]

What distinguishes Aeris is not the inclusion of these elements individually, but how they are arranged in relation to one another. Active, social, and passive spaces are layered vertically rather than separated, allowing residents to choose between them without leaving the building or moving far from their apartment. This proximity supports both routine use, such as a morning swim or evening workout, and more occasional gatherings, whether around the BBQ area or within the cinema setting.

The amenity design also sits within a broader framework of connectivity across Melrose Park. The Melrose Park Town Centre, anchored by Coles and Dan Murphys, features a mix of retail, dining, health and lifestyle offerings, bringing everyday convenience closer to residents. By the end of the year, more than five hectares of parks and open space, equivalent to around seven football fields of green space on residents' doorstep, will further enhance the precinct, allowing the internal facilities at Aeris to operate as an extension of the wider neighbourhood rather than a substitute for it.

Construction at Aeris continues to gather momentum, with ground floor slabs expected to be completed in late 2026 before the first sections of the buildings begin to rise above ground.

[smartcode_project_cta:default project_id=426]

Elevated amenity anchors daily life at Aeris, Melrose Park

Repeat buyers are one of the strongest measures of confidence in any apartment development.

At <a href="https://www.apartments.com.au/new-apartments/era-newcastle-west-124-126-bull-street-newcastle-west-nsw-2302">ERA</a> in Newcastle West, some purchasers are returning to <a href="https://www.apartments.com.au/developers/gwh">GWH</a> after living at the developer's One Apartments. Their decision to purchase again was driven by the quality of life they found after moving into their first GWH home.

Keith Wilton had spent years living in a house in East Maitland before deciding it was time for a change. Apartment living had always been on his radar, but he was selective about what he wanted.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/FH_1EzB-1vs?si=XScVlP1ERsTDJoME" title="YouTube video player" width="560"></iframe>

"I had some boxes I wanted to tick," he says.

Keith points to the open-plan design, generous outdoor areas and considered inclusions as key reasons One Apartments worked for him.

“One of those things was a nice indoor open plan area, but also I wanted a nice outdoor open area that I could entertain on in summer or Christmases or birthdays,” he says.

He also found value in the smaller details, from integrated appliances to shared resident spaces including the pool, cinema and rooftop areas.

[smartcode_project:default project_id=135096 project_image_fid=356818]

After comparing several developments, he chose One Apartments because of GWH's longstanding local reputation and his own experience working with the developer on a commercial project more than a decade earlier.

"I knew that they were local, that the quality of the build was going to be up there. I'd looked at other apartment complexes around and close by, and I just knew that here was a better decision location wise."

Today, Keith says the move has completely changed how he experiences Newcastle.

"I enjoy living in this location because it's more of a lifestyle change. That Newcastle city living where you can walk to restaurants and bars and even beaches and parks and even shopping across the road."

[smartcode_project:default project_id=135096 project_image_fid=356828]

Beyond the location, he says it's the sense of community that has surprised him most.

"Everyone loves living here because they chose to live here, but everyone looks out for each other. It's a real great community feel here."

For Aimee and Lyle Goodman, the journey started almost by chance.

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The couple happened to be having coffee in Newcastle when they noticed the site where One Apartments was about to begin construction.

"We were aware GWH was planning a development," Aimee says. "We made one phone call and things moved pretty quickly after that."

As busy business owners, they initially thought apartment living would simply reduce the maintenance that came with larger homes. Instead, it fundamentally changed how they spent time together.

"We actually catch up more as a family now," Aimee says.

"We've had homes with big yards and lots of space, but everyone ended up in different rooms. Here we'll have dinner together, the kids can play, and we spend far more quality time together."

[smartcode_project:default project_id=135096 project_image_fid=356829]

Lyle says their confidence came from GWH's reputation within Newcastle's building industry.

"I know people who've worked across different apartment projects, and whenever GWH came up the feedback was always the same. They're rock solid. They're quality."

That confidence only grew throughout the buying process.

"One of the things that really impressed us with GWH was the whole process, was the communication," Lyle says. "It was consistent, it was regular, there was no problem if we had some weird questions, there was no problems in getting answers."

[smartcode_project:default project_id=135096 project_image_fid=351104]

Aimee says one moment stood out.

"The project actually finished on time. We realised we needed to hurry up and sell our house because everything was happening exactly when they said it would."

The positive experience at One Apartments ultimately gave all three buyers the confidence to purchase again with GWH, this time at ERA.

Their confidence reflects what many buyers are seeking in today's apartment market. Location remains important, but so too does certainty around delivery, quality and long-term liveability.

[smartcode_project:default project_id=135096 project_image_fid=356822]

ERA builds on those foundations with 280 one, two and three-bedroom apartments across two landmark towers in <a href="https://www.apartments.com.au/developments/newcastle-west-nsw-2302">Newcastle West</a>.&nbsp;

Designed by <a href="https://www.apartments.com.au/architects/fk-australia">Fender Katsalidis</a>, the project will include more than 2,000 square metres of resident amenities, including a resort-style pool, gym, sauna, private cinema and rooftop entertaining spaces overlooking the harbour and coastline.&nbsp;

The development is also within walking distance of the Newcastle Interchange, Honeysuckle, Darby Street, the harbour foreshore, restaurants, retail and the city’s beaches, continuing the walkable lifestyle that existing GWH buyers say has transformed how they live.

[smartcode_project:default project_id=135096 project_image_fid=356826]

For Keith, the appeal remains straightforward.

"You feel at home even before you've moved into your home."

For Aimee, the change is measured in time.

“I just felt like I had more time,” she says.

[smartcode_project:default project_id=135096 project_image_fid=351102]

Construction at ERA is now underway, with more than half of the residences already sold and limited two and three-bedroom apartments remaining in the East Tower release. Priced from $980,000 for two-bedroom residences and $1.46 million for three-bedroom residences, buyers can secure an apartment with a 10 per cent deposit, with premium homes offering ocean views from Level 8 and harbour views from Level 10.

ERA is also backed by Resilience Insurance's 10-year Latent Defects Insurance policy, providing protection against structural or waterproofing defects for 10 years after completion. The project is anticipated to be completed in early 2028.

[smartcode_project_cta:default project_id=135096]

From ONE to ERA: Why buyers are choosing GWH again in Newcastle West

Economics

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GUEST OBSERVER
The Reserve Bank of Australia could join the likes of Estonia and Lebanon in creating a cryptocurrency based on the Australian dollar, to reap the benefits of technology like the blockchain but with more stability than other well known currencies like Bitcoin.
The RBA has already been approached by interested startups to create this new digital currency, known as the “DAD” or Digital Australian Dollar.
In contrast with other cryptocurrencies a state-backed digital currency has the advantage of being backed by the government as in fiat currency, but at the same time has the technological advantages shared by other cryptocurrencies.
A digital Australian dollar could remove the role of middlemen and create a cheaper electronic currency system, while at the same time enabling the government to fully regulate the system.
It would also allow transactions to settle faster (several minutes to an hour) than the traditional banking system (several hours to several days), especially in a situation where an international payment is involved.
The difference between a digital Australian dollar and Bitcoin
We already use the Australian dollar in a digital form, for example paying via your smartphone. But banks are essential in this system, moving money on our behalf.
When using a cryptocurrency, you interact with a system like the blockchain, an online ledger that records transactions, directly. Bitcoin, Litecoin, and Ethereum are examples of cryptocurrency that use the blockchain in this way. These currencies are created by the community that use them and are accepted and trusted within the community.
However, since the community runs the system, the price of the cryptocurrency solely depends on the market mechanism. When the demand increases, the price increases, but when the demand decreases, the price also decreases. While it might create an opportunity for speculators to gain profit from trading, it also creates risk for the cryptocurrency holders.
In comparison to cryptocurrency, the digital Australian dollar might be well managed that the price volatility could be reduced significantly. The government holds the capability of increasing or decreasing the money supply in the system. This power can be used to stabilise the market supply of the new digital currency.
The blockchain technology also reduces the fee for every payment made. This is made possible by removing the role of banks or other intermediary parties charging fees for their services. However, a small transaction fee still needs to be introduced to protect the system from being flooded by adversaries with insignificant transactions.
The characteristics of cryptocurrency itself might limit its usage to daily transactions. As the pioneer of cryptocurrency, Bitcoin was created to become a payment system, but the users gain incentive by simply saving their cryptocurrency and not using them to purchase goods or services.
They believe the future price of the cryptocurrency is higher than the current price and thus does not make a good medium of exchange nor a store of value. There is no guarantee that the cryptocurrency will hold any value in the future. Since there is nothing to back up the value, users will lose their wealth when the community no longer acknowledges the value of cryptocurrency.
Cryptocurrency might also jeopardise the local government’s effort of implementing regulations to minimise illegal activities. Perpetrators create cryptocurrency transactions easily without being detected by the government’s financial monitoring system.
The privacy features of cryptocurrency also make it hard for law enforcement agencies to determine the actors behind illegal activities. Although most governments in the world have enforced the coin exchange services to identify their users, the operation of the cryptocurrency is beyond their reach.
There are other state-backed digital currencies
The idea of creating a national cryptocurrency is not new. Estonia has explored ways to create Estcoin, following an initiative on the blockchain-based residency registration called e-Residency. Lebanon’s central bank has also started to examine the possibility of creating one.
Despite the efforts of those central banks, several questions must first be addressed before launching the real product to the public. The user’s financial data could be exposed since the blockchain will make all transactions created in the system transparent.
<img src="https://counter.theconversation.com/content/86621/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">Consumer protection is also a concern since all transactions made in the blockchain are permanent without the possibility of being reversed. Without firm solutions to those problems, the digital Australian dollar will not satisfy all requirements to be the next groundbreaking innovation for the country’s financial system.
Dimaz Wijaya, PhD Student, Monash University
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/why-the-rba-would-want-to-create-a-digital-australian-dollar-86621" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Why the RBA would want to create a digital Australian dollar: Dimaz Wijaya

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<img src="https://counter.theconversation.edu.au/content/82892/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Last Friday, the world’s central bankers and some high profile economics professors will gather in Jackson Hole, Wyoming, for the annual Jackson Hole Economic Policy Symposium.
The Symposium, which is hosted by the Kansas City Federal Reserve, began in 1978. It does allow for discussions, information exchange, and time to reflect on the key issues bearing on monetary policy. But it’s not like the US Fed Chair Janet Yellen can’t talk to the European Central Bank (ECB) president whenever she wants – and vice versa.
More importantly, it provides a platform for Yellen and ECB President Mario Draghi to send very public messages about the future path of monetary policy in their respective jurisdictions.
The theme this year is “Fostering a Dynamic Global Economy”. That sounds like a good thing to have – better than an “undynamic one” – but don’t expect a lot of headline-grabbing comments from Yellen or Draghi.
All the data, and all the recent public statements by Yellen and Draghi, point to things basically going as planned. Cross your fingers. Hold your breath. Pray. Whatever works for you.
Draghi is a very smart guy, but he made a complete unforced error in a speech in June. At a banking conference in Portugal he offered: “All signs now point to a strengthening and broadening recovery in the euro area.”
Markets sure paid attention to those remarks. Bond yields rose, as did the Euro, as investors figured Draghi was going to start unwinding his quantitative easing policy. That led to a cast of ECB members having to tell markets that QE was here to stay for now.
Draghi seems to have learned his lesson. On Wednesday in Lindau, Germany he said: “While forward guidance (a tool used by central banks to influence, with their own forecasts, market expectations) is a useful instrument, recent research has highlighted that its effectiveness can be improved if combined with other non-standard monetary policies.”
Translation: no end to QE for now.
We can expect him to say something equivalently uninformative in Jackson Hole (which is actually a compliment to a central banker).
In the US, the Fed has been slowly, deliberately, and carefully tightening monetary policy in response to low unemployment and improved GDP growth. According to the Bureau of Labor Statistics (BLS), unemployment now stands at 4.3% nationally. Wage growth is still on the low side with average hourly earnings (for private, nonfarm payrolls) at US$26.36, up by 2.5% year-on-year to July. But compare that to Australia’s 1.8% wages growth for private-sector workers.
The main issue for the Fed is that inflation remains subdued. Two weeks ago the US Labor Department released figures showing the CPI was up 0.1% in July, after being unchanged in June. Year-on-year the CPI stood at 1.7%, still below the 2% Fed target.
This is Big Issue One for the Fed. Why is inflation so stubbornly low? Is it really because stuff is cheap on Amazon? It’s fair to say that the Fed’s (and others’) macroeconomic models are having a hard time explaining this fact.
But don’t expect Yellen to wade into the inflation-puzzle waters this week. That’s the sort of thing best done in the post-summer period – the US academic new year. My guess is that Yellen will start addressing that topic publicly some time before Thanksgiving, if she decides to do so at all.
There is, however, always the possibility for some fireworks at Jackson Hole. Not from Yellen or Draghi, but one of the academic speakers.
<h2>Rocking the boat</h2>
At Jackson Hole in 2005 University of Chicago Booth School of Business professor Raghuram Rajan gave a speech that was not popular with then-Fed-Chair Alan Greenspan, but turned out to be prescient.
The title of the paper he based it on was “Has Financial Development Made the World Riskier?” And he answered it in the affirmative. The reaction from many in the room at the time was that Professor Rajan was some kind of financial Luddite. Perhaps he also thought the wheel was a bad invention?
The fact that he was, well, right, is interesting and important, but beside the point for the purposes of this column. The real question is what the equivalent bomb-throwing speech from a participant might be this time.
Hard to say, but it might be to do with 2% GDP growth being the new normal, and what that means for long term monetary policy. This has been discussed by many people, such as former US Treasury Secretary Larry Summers, so it might not be all that new. But it could be made forcefully at the very large megaphone that Jackson Hole provides.
Look for a speech from a noted academic suggesting that inflation targeting should be abandoned; perhaps replaced with targeting of nominal GDP growth.
Such a speech wouldn’t be super new, or very surprising. But it might ruffle some feathers. The Fed has a plan and they’re sticking to it. This is practical macro. I suspect they are not in the mood for an academic seminar.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a> is a Professor of Economics and PLuS Alliance Fellow at UNSW and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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Don’t expect much from the central bankers at Jackson Hole: Richard Holden

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<img src="https://counter.theconversation.edu.au/content/75539/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The Australian Prudential Regulatory Authority (APRA) and the Reserve Bank (RBA) are locked into a strange game of tweaking with economic levers to try and reduce the risk of a rapidly growing property market.
But past cycles of rate rises and rules to try and curb lending to investors show the effectiveness of these measures is running out.
It also underscores the problems arising from a government unwilling to tackle the problem at source – the perverse incentives in the tax system. 
Looking back to December 2014, the RBA voiced its mounting concerns about the rapid growth in lending to property investors and the steep increases in property prices it was fuelling. But rather than address these concerns by raising interest rates, as the RBA had done in somewhat similar circumstances in the early 2000s, it was instead left to the banking system regulator APRA to tackle this by writing a letter to banks and other mortgage lenders about the need for more cautious mortgage lending practices.
This letter laid down new rules capping the annual growth in lending to investors at a benchmark of 10%. APRA also set stricter criteria for determining whether borrowers could repay their loans if interest rates were to change. 
This warning from the regulator had its desired effect. The share of new housing loans made to investors fell from over 40% during the 2014-15 financial year to less than 30% by the December quarter of 2015.
And this in turn saw the annual growth rate of loans to property investors slow from a peak of 10.8% in the June quarter of 2015 to less than 8% by the end of 2015. It fell again to less than 5% by the September quarter of last year. 
The banks also fell into line with the new rules, cutting back on other more risky types of lending, such as interest-only loans, and loans with initial loan-to-valuation ratios in excess of 90%.
The RBA was especially pleased with these developments, thinking that the risk was easing. So when it met again in May last year, the RBA Board was persuaded to cut the cash rate to a new record low of 1.75%,in response to a much-lower-than-expected inflation result for the March quarter. 
The RBA still seemed content at its August 2016 meeting, seeing the easing conditions in the housing market as being consistent with APRA tightening the lending standard screws. It decided on another cut in the cash rate, to 1.5%.
But now investors have come back into the property market with a vengeance. These two reductions in interest rates have in effect overwhelmed the tightening in lending standards enforced by APRA during the first half of 2015.
This resurgence in lending to property investors has pushed up property prices once again, especially in Sydney and Melbourne. Dwelling values rose by 18.4% in Sydney and 13.1% Melbourne respectively, over the year to February.
The share of new loans going to investors has picked up from less than 30% in the December quarter 2015, to over 35% in the December quarter 2016, according to APRA statistics. This is from less than 44% of new housing finance commitments (excluding refinancings) in November 2015 to more than 50% in January 2017 according to ABS housing finance statistics. 
The annual growth rate of loans outstanding to housing investors, as published by the RBA, has accelerated from 4.6% last August to 6.7% in February this year: over the last four months, lending to property investors has risen at an annualised rate of 8.0%. 
Now the RBA is back to being concerned about a build up of risks associated with the housing market. 
The RBA’s Assistant Governor (Financial System), Michele Bullock, acknowledges that although APRA’s 2015 actions “did address some of the risks” that had been mounting during 2014, “the initial effects on credit…may fade over time”. She added that APRA and the RBA “are prepared to do more if needed”. But since the RBA clearly has no appetite to reverse last year’s rate cuts any time soon, the only feasible option in the short term option is for APRA to do something about the Sydney and Melbourne markets. 
So APRA has today take another another bite at the cherry, requiring banks to restrict new interest-only lending to 30% of all new loans (a lower proportion than at any time since early 2009) and to ensure that growth in lending to investors is “comfortably below” the 10% cap.
What all of this highlights is the limited effectiveness of so-called “macro-prudential” measures in countering the very strong incentives to invest in residential property. These incentives are created by the combination of record low interest rates and the unusually generous treatment which the Australian taxation system gives to the costs of and returns from debt-funded property investment. 
While some commentators have urged the Reserve Bank to lift interest rates in order to dampen the latest surge in borrowing to invest in residential property, this seems unlikely. The RBA continues to expect inflation to remain below its 2-3% target range until at least the middle of next year, and unemployment to remain closer to 6% than to 5%.
It would be far better if the federal government were to tackle the problem at source. He could do this either by limiting the scope for negative gearing or reducing the capital gains tax discount, as Malcolm Turnbull once advocated (in a 2005 paper co-authored with the ANU’s Jeromey Temple). Even the Property Council of Australia has conceded should be lowered to 40%, and denied altogether on investments held for less than two years. 
However, given the government’s unwillingness to consider such measures, it seems more likely that APRA may have to become even more prescriptive with its lending criteria. And, as we have seen, in the current interest rate environment that is merely a bandaid solution – and bandaids eventually wear off.
Saul Eslake is vice-chancellor’s Fellow, University of Tasmania and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/saul-eslake-665" target="_blank">here</a>.
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The APRA bandaid for the housing market is wearing off: Saul Eslake

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In his recent presidential address to the American Economic Association, Nobel Laureate Bob Shiller drew attention to the importance of narratives in economics and, particularly, in financial markets.
This corroborates some recent research by the author and colleagues at the University of Queensland into the psychology of economic behaviour.
When we tell ourselves stories, we link up a number of different events into a coherent whole.
In financial markets and across the economy as a whole, these stories not only affect expectations but are expectations.
And expectations shape behaviour.
Our research shows that the more simple a story, the more it extends and agrees with preconceptions, the more persuasive it is.
A good story becomes embedded in investors’ minds; the story becomes the expectation.
If a narrative embedded in the mind of an investor tells a positive story about, for instance, profitability, they will act on it.
A positive story results in good news in the financial markets.
An example of what might occur when a powerful narrative spreads across financial markets is playing out right now.
The latest figures from the Australian Bureau of Statistics (ABS) reveal a huge spike in commercial loans last November.
Seasonally adjusted, there was a 14.8% increase in commercial finance from the month before.
The strange thing is, this surge occurred at the same time NAB’s Monthly Business Survey showed businesses were “increasingly concerned about the underlying momentum in the economy as evidence mounts that the non-mining economy is losing steam”.
Businesses expecting a sluggish future don’t suddenly go out and borrow 14.8% more money.
But we can see in the graph below that for much of the year business finance had been flat or declining. Until it wasn’t.
<a href="https://www.propertyobserver.com.au/images/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.43.55%20pm.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.43.55%20pm.jpg" alt="">
Now these are aggregate data; they tell us the change in the amount of lending to business done by the financial sector as a whole.
Even then, this spike is unusually massive, and therefore in and of itself in want of an explanation.
John Maynard Keynes wrote that surges in finance are supported by two factors: relatively cheap credit and expectations of future returns.
Without strong expectations of future returns, no amount of cheap credit can induce businesses to borrow and invest.
This is the famous “liquidity trap”.
Our research shows that a compelling story – one that extends and agrees with preconceptions – would have been sufficient to overcome the liquidity trap.
A mathematical principle called the “Chinese Whispers” theorem indicates that for us to see remarkable and sudden changes in economic systems we must be observing the effects of a powerful narrative supporting positive expectations (i.e. future profitability).
Meanwhile, a concept popularly known as “Made To Stick” indicates that a simple story, connecting emotionally charged ideas together while extending and agreeing with preconceptions, is sufficient to become embedded in minds and inform expectations.
In our research we demonstrate that this idea is the logical conclusion of a half-century of psychological research on cognitive dissonance, personality and “salience” in perception, as well as some simple mathematics.
You can see this play out in the headlines about the “Trump bump”.
Very soon after the Brexit vote and consistently afterwards, Theresa May indicated an eagerness to strike free trade deals with the US and Australia and Malcolm Turnbull concurred.
And while Donald Trump campaigned on anti-trade policies, these excluded the Anglosphere.
Further, the British economy did not collapse following the Brexit vote, and Trump’s policy platform included massive infrastructure stimulus, tax cuts and deregulation. Adding to all this, Congress and the Supreme Court are now Republican.
This is a positive narrative for expectations of future returns, because the Australian economy on the whole does not compete with the US and UK economies.
Rather, we help to supply their demand.
We have business to gain by participating in a strong Anglosphere economic bloc, and we have little business to lose.
Throughout financial history, there are other examples where powerful narratives have driven the markets.
John Kenneth Galbraith, in his history of money and the 1929 crash, tells us of at least three spectacular ones.
When King Louis XV granted the Mississippi Company the profits of the colony of Louisiana, its share price rose so high it reflated the French economy.
In his book, The Ascent of Money, Niall Ferguson shows us exactly how the narrative about the unbounded wealth of the Louisiana company drove this spread – in pamphlets, cartoons and posters.
When parliament granted the South Sea Company a monopoly over trade with the Spanish American colonies, its shares became so valuable it was for a time decided it, rather than the Bank of England, should assume responsibility for the British national debt.
The fact its merchants would have to run the gauntlet of the Spanish navy all the way across the Atlantic was conveniently ignored, while the story of fabulous riches from the new world captured the attention of investors.
The narrative of the Shenandoah Corporation beats them all. The initial call for investments was oversubscribed by a factor of seven.
Why? Because at that time a story was being told about the ability of fund managers applying “investment science” to obtain amazing returns.
“Trust the experts, they’ll make you a mint” is a simple story, connecting emotionally charged ideas together while extending and agreeing with our tendency to defer to the advice of the “wise men”.
Governments and investors ignore the power of storytelling at their peril.
The financial markets are not driven by the “mechanics” of interest rates and money alone.
They are driven by one of the most ancient traditions of humanity – stories.
We can lead an investor to liquidity, but we can’t make them drink without telling them a story about why it is so very tasty.
And if we want to stop them from drinking a really tasty poison, it’s not enough to make the poison a bit harder to get.
Either it has to be taken away (verboten), or a simple story, extending and agreeing with preconceptions, has to be told about why poison that tastes really nice is still poison.
<a href="https://theconversation.com/profiles/brendan-markey-towler-151862" target="_blank">Brendan Markey-Towler </a>is an Industry Research Fellow for the Australian Institute for Business and Economics and School of Economics at The University of Queensland. He is an author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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How storytelling drives finance and economics: Brendan Markey-Towler

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GUEST OBSERVATION
Over the past three months there has been a significant shift in market interest rates.
The yield curve has steepened and market pricing for another RBA rate cut has receded. Current market pricing indicates a small (15%) chance that policy is eased again. And it implies a 35% chance of a rate hike within the next 12 months.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/06/cba-feb-1.jpg" alt="">
CBA’s house view is that interest rates are on hold over 2017. And in our view, the risks over the year lie with a cut. But the steeping in the yield curve and shift in market expectations has led us to revisit our estimate of the neutral cash rate.
The analysis confirms our earlier work that neutral it is much lower than in previous cycles which means that the cash rate would not need to rise by much for policy to no longer be having a stimulatory impact on the economy.  We estimate it to be 3% (2.5 – 3.5% range) which means that the current cash rate is about 150 bps in expansionary territory.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/06/cba-feb-2.jpg" alt="">
What is a neutral interest rate and why does it matter?
The level at which the RBA sets the cash rate can either have an expansionary, contractionary or neutral impact on economic activity. The neutral cash rate is the interest rate (or range of rates) consistent with full employment, trend growth and neither upward nor downward pressures applied on the price level through monetary policy. Or more generally, when the setting of interest rates is such as to exert neither contractionary nor expansionary forces on the economy, policy can be said to be ‘neutral’.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/06/cba-feb-3.jpg" alt="">
But the neutral rate it is not a constant rate. Rather it is influenced by changes in productivity, the stock of debt, lending margins, fiscal policy and the exchange rate. These drivers have moved in a way over the recent past that indicates the current neutral cash rate is probably at a record low.
The neutral rate is an important benchmark rate for evaluating the stance of monetary policy. It allows us to determine how expansionary or contractionary a particular policy setting is at any point in time.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/06/cba-feb-4.jpg" alt="">
One rule of thumb often used is comparing the level of the cash rate to a historic average cash rate to assess how accommodative or restrictive policy settings are. But that can be misleading because the neutral rate is fluid and varies over time.
When we compare current policy setting to the neutral rate they do not look as expansionary as implied by comparing the current cash rate to the historic cash rate average.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/06/cba-feb-5.jpg" alt="">
Policy implications
A range of estimates and theoretical arguments suggest that the neutral cash rate has moved to a record low. Our qualitative and quantitative analysis points to a neutral range of 2.5%-3.5% meaning a point estimate of 3%.
The analysis suggests that the RBA is faced with a relatively easy task if it needs to put the brakes on the economy at some point further down the road. It wouldn’t take a lot of tightening in policy to restore monetary policy to a neutral setting.
The flip side is that it becomes harder for the RBA to stimulate the economy as the neutral rate falls and we approach the lower bound. The limitations of monetary policy to stimulate growth become more apparent when the neutral rate falls towards the lower bound. The need for meaningful fiscal policy reform grows as a result.
We don’t see the RBA tightening over 2017. And in our view the risks like with further easing. Calls for fiscal policy reform in addition to higher levels of public investment will continue.
Gareth Aird is an economist at the Commonwealth Bank of Australia.
This is an edited extract of CBA Economics February 2016 report.
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jonathanchancellor-7SQnKwU6yx

RBA reaching the limits of its stimulatory solutions: CBA's Gareth Aird

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<img src="https://counter.theconversation.edu.au/content/57114/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
When the Committee for Economic Development of Australia (CEDA) recently released its recommendations on how the government should balance the budget, it prefaced it with the statement “No economic problem in Australia is graver than the persistence of large budget deficits”. But precisely the opposite is true.
To understand why, it’s necessary to explain the economic work of David Alan Aschauer. Work that appears to have been ignored in the current discussion about budget deficits.
Aschauer investigated the effects of government spending on infrastructure in increasing of the rate of return on private investment and hence on the volume of investment in the private sector. His work has been accepted by an extremely wide range of economists. It is not new. His most-quoted article was published in 1989.
Moreover, Aschauer is a neoclassical economist; that is he belongs to what is currently the dominant school of economics. Since 1989 there have been many articles published by Aschauer and his followers.
Aschauer himself summed up his work in the following quote:
“On neoclassical grounds expansions of public investment spending should have a larger stimulative effect on private output than equal-sized increases in private consumption expenditure. Specifically, public investment is argued to induce an increase in the rate of return to private capital and, thereby, to stimulate private investment expenditure.
The empirical analysis indicates that movements in public investment bring forth movements in private-sector output which are four to seven times as large as the public sector outlays.”
Of course, there can be, and have been, arguments about the size of the effects that Aschauer estimated in his empirical work. The general tenor of these is that the figure is more likely to be closer to the lower end of Aschauer’s range than the top.
But when researchers at UNSW made estimates for Australia, they arrived at a figure they described as “very similar to Aschauer’s (1989) findings for the United States". They concluded that “public capital plays an important role in private production, a role which may often be overlooked”.
This provided evidence, they believed, of the positive relationship between public capital and productivity in the private sector in Australia in the 30 years before they wrote their article.
Both Aschauer and the Australian researchers Glenn Otto and Graham Voss used aggregate data – data for the whole public capital sector and for productivity in the private sector as a whole.
Their striking and important results do not remove the need for governments to pick public investment projects that are more likely to increase private sector productivity. The models they and Aschauer have used are too simple to give convincing answers to the question, which requires the use of much more sophisticated models. However, they do cast doubts on the likelihood of politically motivated public investment projects contributing anything to long-term growth in Australia. And they were not writing in an election year.
Current discussions about budget deficits largely ignore the work of Aschauer and are much poorer as a result.
If some attention had been paid to this work the gloom and doom of CEDA’s recent report would have been greatly reduced.
John Nevile is visiting emeritus professor, UNSW Australia and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/john-nevile-139716" target="_blank">here</a>.
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Balancing the budget mantra overlooks benefits of infrastructure spending

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China’s policy makers met at the National People’s Congress in early March, announcing an economic growth target range of 6.5-7 percent. 
In addition, they released a target growth rate for total social financing of ‘around 13 percent’ – which would result in a further deterioration of debt-to-GDP.
As noted in this month’s China Economic Update, a broader estimate of China’s debt puts this figure at around 308% of GDP – a level comparable to many advanced economies and particularly high for a still developing country. Chinese authorities are now facing a debt dilemma – they can no longer allow debt to grow unchecked, however controlling debt growth would mean accepting a slower rate of economic growth. At least for 2016, they appear content to allow the former to happen.
Industrial production growth slowed to a seven year low in January-February, while fixed asset investment accelerated slightly, on the back of stronger investment in real estate. New construction starts were stronger over this period, but it is too early to know if this is a trend that can be sustained.
Retail sales were a little softer – with real retail sales growth likely dipping below 10 percent yoy, slightly weaker than the levels recorded across most of 2015 but still robust. 
At the end of February, the People’s Bank of China (PBoC) cut the Required Reserve Ratio for the fifth time in a year – down to 17 percent for large institutions – potentially adding RMB 690 billion in liquidity to financial markets. As we have previously noted, these policy changes are not necessarily stimulatory, as RRR cuts have been necessary to maintain liquidity in the finance sector, given the capital outflow in recent years.
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.35.51%20AM.png" target="_blank">Click to enlarge</a>
  <img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.35.51%20AM.png" alt="">
China’s policy makers met at the National People’s Congress in early March, releasing a range of targets for key economic indicators. The most closely watched is the economic growth target, which was slightly reduced for 2016 – to a range of 6.5 percent to 7.0 percent – compared with last year’s ‘around 7.0 percent’. 
Our forecast for growth is unchanged at 6.7 percent in 2016 and 6.5 percent in 2017, although we consider the risks to be weighted to the downside. 
Authorities also set a target for growth in total social financing, at around 13 percent for 2016 – which would mean a further deterioration in the country’s debt-to-GDP ratio. 
As noted in this month’s China Economic Update, a broader estimate of China’s debt puts this figure at around 308 percent of GDP – a level comparable to many advanced economies and particularly high for a still developing country. 
Under the newly commenced 13th Five Year Plan, also released at the National People’s Congress, China is targeting an average rate of growth of 6.5 percent in the period to 2020 – which would result in a doubling of GDP over 2010 levels. 
Chinese policy makers are facing a significant dilemma regarding the country’s debt. They can no longer afford to allow debt to grow unchecked – as this would increase the likelihood of a major financial crisis and the potential for a hard landing. On the other side, real economic growth is unlikely to be sustainable at the five year target without stronger growth in debt – bringing down the ratio would mean tolerating a considerably lower potential rate for economic growth (something that policy makers are unlikely to tolerate). 
China’s industrial production slowed across January and February – down to 5.4 percent yoy (compared with 5.9 percent in December 2014). This rate of growth was below expectations and the slowest rate of growth since the same period in 2009. 
Key heavy industrial sectors remained weak – with crude steel output falling by 5.7 percent yoy, cement production down 8.2 percent yoy – reflecting weakness in the construction sector, while the motor vehicle sector recorded growth of 5.3 percent yoy. Electricity generation was marginally stronger – up 0.3 percent yoy. 
•China’s industrial surveys have remained negative in early 2016, with the official NBS survey falling to 49.0 points in February (from 49.4 points previously), the weakest level since January 2009. In contrast, the Caixin Markit PMI also fell, down to 48.0 points (from 48.4 in January), but this measure is less negative than late 2015. 
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.38.37%20AM.png" target="_blank"> Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.38.37%20AM.png" alt="">
Fixed asset investment recorded an acceleration in early 2016, with growth at 10.2 percent yoy across January and February, up from 8.2 percent yoy in December. It is worth noting that this was around the rate of growth recorded in November 2015, which was well below the trend levels of recent years. 
Investment in the manufacturing sector has continued to slow – reflecting tough industrial conditions and excess production capacity – down to 6.7 percent yoy (on a three month moving average basis), compared with 7.6 percent in December. In contrast, there has been a slight improvement in real estate investment, recording growth of 1.7 percent yoy (3mma) in February, up from -3.3 percent in December. Combined, these two sectors accounted for almost 56 percent of total investment in 2015. 
In contrast, strong investment growth has been sustained in water conservation and environmental management (27 percent yoy across January-February) and public utilities (19 percent yoy) – with these sectors comprising around 15 percent of the total in 2015. 
Residential construction activity was stronger in January-February, however it is too soon to know whether this is a trend that can be sustained. New construction starts were up around 9.7 percent yoy over this period, and up 1.5 percent yoy on our preferred three month moving average basis (reflecting very weak growth in late 2015). 
House price trends have improved in recent months, however the majority of gains have been in China’s tier 1 cities (Beijing, Shanghai, Shenzhen and Guangzhou) – where prices rose by 17% yoy. In contrast, tier 2 cities rose by just 0.3% yoy and tier 3 and below by 1.1% yoy. A more sustained recovery outside tier 1 cities may be required to support sustained stronger construction activity. 
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.39.56%20AM.png" target="_blank"> Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.39.56%20AM.png" alt="">
China’s trade activity pulled back sharply over the first two months of the year, with substantial falls in both imports and exports – both from the levels of late 2015 and from levels a year ago. China’s trade surplus only narrowed marginally – averaging US$47.9 billion a month across January and February (compared with US$59.4 billion in December 2015).
Across January and February, China’s imports totalled US$207.5 billion, a year on year fall of 17%. In part, this reflects the continued falls in commodity prices, with the RBA Index of Commodity Prices falling by almost 25% yoy in the first two months of the year.
In contrast, the volume of imports has declined less significantly, down by only around 2.8% in 2015, and around 6.8% in January (although the earlier timing of Chinese new year may have distorted the latter result).
In terms of major commodities, there were noticeable increases in imports of copper (up 23% yoy in January-February), crude oil (up 9.3% yoy) and iron ore (up 6.3% yoy). In contrast, the declining trend for coal continued, down by 10% yoy over the first two months.
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.51.56%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.51.56%20AM.png" alt="" width="913" height="357">
China’s exports totalled US$303.3 billion across January and February, a fall of 18% yoy. China’s exporters remain relatively negative, with the new export orders measure in the NBS PMI survey at 47.4 points in February (albeit improved from 46.9 points in January).
The key driver of the fall in export values over the first two months was a decline in exports to Asia – which fell by over 18 percent yoy, to US$90 billion. Exports to Europe and the United States fell less significantly – with both down by around 16 percent yoy.
Exports to Hong Kong declined less sharply than other markets – down by around 13 percent yoy across January and February. In contrast, non-Hong Kong Asia saw declines of almost 22 percent yoy – led by falling export values to Malaysia, South Korea and Vietnam.
Trade data between China and Hong Kong continues to have considerable distortions, in part due to false invoicing used to hide unapproved capital flows – providing considerable uncertainty around the true level of trade.
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.54.00%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.54.00%20AM.png" alt="" width="787" height="294">
 
At the end of February, the People’s Bank of China (PBoC) cut the Required Reserve Ratio for the fifth time in a year – down to 17 percent for large institutions – potentially adding RMB 690 billion in liquidity to financial markets. As we have previously noted, these policy changes are not necessarily stimulatory, as RRR cuts have been necessary to maintain liquidity in the finance sector, given the capital outflow in recent years. 
We continue to expect two cuts to interest rates in early 2016 – bringing the benchmark one year lending rate to 3.85 percent by mid-year. Similarly further cuts to the Required Reserve Ratio are likely to maintain liquidity in the finance sector, with capital outflows likely to continue in the short term. 
After a sharp increase in January (ahead of Chinese new year), new credit slowed significantly in February. Over the two month period, aggregate financing totalled RMB 4.2 trillion, an increase of 23 percent yoy. 
Bank loans recorded slightly slower growth, 19 percent yoy, to total RMB 3.1 trillion. Efforts to tightened regulation around the shadow banking sector has seen a strong increase in bank loans across the past two years. 
The key driver of other credit was corporate bonds, with net issuance totalling RMB 541 billion in January and February, an increase of 110 percent. 
Key components of the shadow banking sector largely cancelled each other out – with growth in trust and entrusted loans (at 111 percent yoy) offset by a sharp fall in banker acceptances (-275 percent yoy). 
<a href="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.55.28%20AM.png" target="_blank"> Click to enlarge</a>
<img src="/images/2016/03/14/Screen%20Shot%202016-03-14%20at%208.55.28%20AM.png" alt="">
Alan Oster is group chief economist, National Australia Bank, and can be contacted <a href="https://business.nab.com.au/author/alan-oster/" target="_blank">here</a>.
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China's economy at a glance: NAB's Alan Oster

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GUEST OBSERVATION
Behavioural economics is a revolutionary field. Its champions may not have beheaded any royalty, but they have done the academic equivalent by overthrowing a paradigm that ruled our thinking and shaped our institutions.
Behavioural economists have shown that the hyper-rational, self-interested agents of standard economics are mythical creatures. Real-world people are irrational, struggle to exert control over their emotions and impulses, and are social animals with a fondness for fairness.
This paradigm shift radically changes how we think about behaviour, and it seems poised to change our institutions. But how much change will it bring?
Will the influence of behavioural economics on policy be limited to improving the wording of parking fines sent out to misbehaving motorists? Or can it also help us institute bold, sweeping reforms of the type that have helped make Australia equitable and prosperous?
The answer is: it depends.
The policy impact of behaviour economics will be limited – and may even be harmful – if public servants focus excessively on the behavioural revolution’s most famous offspring, <a href="https://www.youtube.com/watch?v=pDub6gG1yxw" target="_blank">the policymaking approach called “nudge”</a>.
On the bright side, the focus on nudge is artificial. It does not flow from the evidence. Some of the most important regulatory reforms in Australia’s history could have been justified using behavioural economics – and such opportunities for reform will emerge again in the future.
<h2>The birth of the nudge</h2>
The “nudge” policy approach took the United States and United Kingdom by storm in 2008, when Cass Sunstein and Richard Thaler released their groundbreaking work, <a href="https://yalepress.yale.edu/book.asp?isbn=9780300122237" target="_blank">Nudge</a>.
In the psychological weaknesses uncovered by behavioural economists, Sunstein and Thaler saw opportunity. They argued we can exploit cognitive biases to nudge, or gently guide, people into making choices that are better for them and for the rest of us too — while always leaving them free to choose otherwise.
Want people to sign up for organ donations? Then harness their tendency to procrastinate, by switching from a system where they must choose to opt-in to one where they must choose to opt-out.
Want people to use less electricity? Then exploit social norms by showing them how little their energy-efficient neighbours pay for electricity.
Want people to avoid payday loans? Then make the loans’ downsides salient, by directly comparing their enormous interest rates with other borrowing options.
<h2>Confusing nudges with behavioural economics</h2>
Nudges may have grown out of behavioural economics, but evidence from that very field suggests that they often fail to meet the hype. Nudges designed to discourage people from taking out ludicrously expensive payday loans, for example, tend to be toothless in practice.
In a new policy brief at the Melbourne Institute, <a href="https://www.melbourneinstitute.com/downloads/policy_briefs_series/pb2015n04.pdf" target="_blank">The Potential of Behavioural Economics: Beyond the Nudge</a> I examine what behavioural economics tells us about the promise of both nudges and tools beyond them.
There is, right under our noses, an unnoticed world of behavioural evidence showing that traditional policy tools — like taxes, transfers and mandates — are in many cases superior to nudges.
Rather than throwing out the baby with the bathwater, behavioural economics suggests we should take a fresh look at how we might use traditional policy tools to counter cognitive biases.
<h2>A nudge bias</h2>
Why has the behavioural evidence on traditional tools been so overlooked? The reasons are largely political.
Nudge was written for a US audience, in a political climate shaped by the anti-paternalistic sentiment that would later coalesce into the Tea Party.
It has become tough, in this context, to pursue rational and equitable reforms of the traditional variety. Government is seen less as the tool the people use to democratically shape the society they want, and more as a suspicious intruder interfering with the benevolent market.
Sunstein and Thaler promoted nudges specifically because they promised a “middle way”: they influenced choices without coercing choice.
This justification turns out to be fanciful. In practice, many non-coercive nudges are too weak to provide serious benefits, and making a nudge effective often means making it coercive.
Take the nudge “success” story of the Save More Tomorrow scheme, designed to counter the strong biases that affect retirement savings decisions. Its central innovation is the automatic escalation of the savings rate over time, so people sign up to save more in future years without losing a dime today.
Though certainly a clever nudge, in practice it <a href="https://www.sco.ca.gov/Files-EO/2013_sco_flac_benartzi_behavioural_econ_and_savings_crises.pdf" target="_blank">increased the national US savings rate by a paltry 0.33%</a>, which will barely make a dent in the enormous problem of old age poverty. Australia’s superannuation scheme leaves it in the dust, with more than twenty times the impact.
Making Save More Tomorrow effective would require increasing its coerciveness — making it compulsory for workplaces to make it the default for all employees, with a much higher default increase in the rate of savings, and a penalty for opting-out — so that it essentially becomes a mandate.
Even then, as I will touch on below, behavioural economics suggests the opt-out would make the scheme welfare-reducing compared to superannuation.
Another example is the host of nudges applied to cigarettes. We plaster packages with gore and health warnings, and we exile smokers to the cold streets where they puff away under scowls and social stigma.
People can still choose to smoke, but this regime of tough nudges is hardly non-coercive. In fact, it is effective precisely because it imposes high costs on smokers.
The point is that nudges are much like traditional tools after all: they are subject to the same trade-offs between agency and welfare.
<h2>Behavioural economics for traditional tools</h2>
Sunstein and Thaler hoped to make peace between the United States’ warring tribes of progressives and libertarians, and this is precisely how we should understand nudges: they are a political innovation, only sometimes justified by the evidence.
What does the evidence say in full? Behavioural economics has comprehensively falsified rational choice economics. We make serious mistakes, and companies know it.
It would be paradoxical if, after rational choice has been so comprehensively discredited, policymakers responded by relying more on choice-preserving tools like nudges.
Consider the policies that make Australia prosperous and equitable, like publicly-funded universities, superannuation, and financial product regulation. Perversely, the nudge philosophy would reject these as too interventionist.
A more complete behavioural economics only strengthens the case for such policy. Take retirement savings: behavioural economics tells us that people tend to be present-biased, and they succumb to the temptation to withdraw early. One solution is to penalise early withdrawals.
The US Internal Revenue Service, for example, imposes a 10% penalty on early withdrawals — but even so, for every US$1 invested, US$0.40 is withdrawn early, at great cost.
How big should the penalty be? A behavioural savings model including the effects of present bias suggests that a <a href="https://eml.berkeley.edu/~webfac/seminars/Optimal_Illiquidity_2014.pdf" target="_blank">100% penalty would maximise welfare</a>, because it would stop all early withdrawals even for the most present-biased individuals.
In other words, Australia’s superannuation mandate is optimal. Savings should be made fully illiquid, with no opt-out. The mandate imposes small costs on the few who would have withdrawn rationally, but these costs are dwarfed by the vast welfare gains overall.
Cash transfers too can be reevaluated under the behavioural lens. Research explored in Mullainathan &amp; Shafir’s <a href="https://us.macmillan.com/scarcity/sendhilmullainathan">Scarcity</a> (2013) demonstrates that poverty causes IQ to plummet, because dealing with the everyday challenge of being poor takes up so much cognitive bandwidth.
The corollary is that when impoverished Indian farmers receive a cash infusion, they experience a massive boost in IQ.
The behavioural evidence suggests that poverty may be cyclic partly because it is so tough to make good decisions while in poverty. Cash transfers free cognitive resources to focus on longer-term problems like learning, finding work, and planning for the future.
<h2>A way forward</h2>
How should policymakers proceed? They should remain agnostic when choosing between nudges and more traditional policy tools.
The right tool will raise welfare as much as possible, without stopping people from making cherished decisions about their lives. The litmus test will be democratic: do people accept the policy or not?
Superannuation, notably, passes the test with flying colours — it curtails choice, but it creates such large benefits that it enjoys enormous levels of support (<a href="https://www.aist.asn.au/media/128974/2012.03.19%20essential%20media%20poll.pdf" target="_blank">only 7% of people polled were against</a> the increase in super from 9% to 12% of income).
It does not curtail a cherished choice, like what job we can take, where we can live, what we can learn, or who we can associate with. It helps most of us do what we already want to do, but struggle to do.
Nudges will play a valuable, complementary role to traditional tools. The science, however, reasserts that there is no easy middle road.
We must continue to democratically debate big ideas about the kind of society we want to build — and we should always build it upon the firm ground of evidence.
Reuben Finighan is senior research officer at The Melbourne Institute, Fellow of the ARC Life Course Centre of Excellence at University of Melbourne and author on The Conversation. He can be contacted <a href="https://theconversation.com/profiles/reuben-finighan-157147" target="_blank">here</a>.
 
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