Queensland builder-developer MAYD has revealed the first look at its major North Kirra beachfront development, lodging amended plans that reduce the number of apartments and increase the proportion of larger residences.

The project is planned across a substantial 4,742 sqm amalgamated site spanning seven lots at <a href="https://www.apartments.com.au/new-apartments/2-6-pacific-parade-bilinga-qld-4225">2-6 Pacific Parade</a> and 27-33 Golden Four Drive in Bilin​ga, directly opposite Nor​th Kirra Beach.

<a href="https://www.apartments.com.au/developers/mayd-group">MAYD</a> secured the site for $32.5 million in 2025, in what was one of the Gold Coast's largest property transactions of the year.

The development will be delivered across two stages, with the first stage carrying an estimated gross realisation value of around $360 million.

The latest amendments seek to reduce the overall apartment count and shift the project further toward the owner-occupier market, with larger residences designed for buyers wanting considerably more space than traditionally offered in a beachfront apartment.

The residential mix will include townhomes, oversized two-bedroom apartments, substantial three-bedroom residences and four-bedroom homes.

MAYD has appointed Cera Stribley to lead the architecture and interiors, with the Melbourne-based design practice drawing on the beachfront setting through a series of ocean-facing terraces and heavily landscaped balconies.

Strong horizontal forms and curved balconies will define the exterior, with subtropical landscaping integrated throughout the building to soften the built form and increase the connection between the residences and the beachfront.

The project will also include an extensive collection of resident wellness and lifestyle facilities, continuing the broader shift across the Gold Coast's luxury apartment market toward larger homes supported by resort-style amenity.

<img alt="MAYD" data-entity-type="file" data-entity-uuid="d1bcbb05-e659-4b47-8bd4-1e595315e2ad" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%202.05.03%E2%80%AFPM.png?VersionId=jj0XEud1X1DuLt7_KyElhjMdZGOXmLHP" />

MAYD Founder Todd Mould said North Kirra was increasingly appealing to buyers attracted to the more established, lower-density character of the southern Gold Coast.

"North Kirra presents one of the most compelling luxury residential opportunities currently emerging in Australia, combining absolute beachfront with the character and authenticity that buyers are increasingly seeking, and the same sense of tight-knit community that defined Burleigh and Currumbin perhaps 10 or 15 years ago," Mould said.

"With Gold Coast Airport on its doorstep, it also offers a level of accessibility that broadens its appeal across almost every market demographic."

The project comes as the southern Gold Coast continues to attract an increasing share of high-end apartment development and buyer activity.

Kirra in particular has emerged as one of the region's more tightly held beachfront markets, with its relatively low-density character, established surf and hospitality scene and proximity to Gold Coast Airport differentiating it from the higher-density markets further north.

Mould said those characteristics had informed the approach MAYD and Cera Stribley had taken to the project.

"We've worked closely with Cera Stribley to create a vision that is deeply connected to its surroundings," he said.

"Inspired by the coastline itself, the architecture has been shaped around space, privacy and resort-style living, creating a collection of homes that reflects the next generation of luxury on the southern Gold Coast."

MOTIV Managing Director Carly Cottam, who has been appointed to market the project, said buyer attention had continued to move south along the Gold Coast.

"Purchasers who may once have defaulted to Broadbeach, Main Beach or Surfers Paradise are increasingly recognising the value of a genuine beachfront location that offers lower density, strong amenity and a more established sense of community," Cottam said.

"Kirra has a powerful combination of growing demand and genuine scarcity. Beachfront supply is inherently constrained, the area remains relatively low density, and buyers are increasingly placing a premium on locations that feel established, uncrowded and authentic rather than heavily developed."

Cottam said the proximity to Gold Coast Airport was also proving increasingly important for interstate and second-home buyers.

"Being minutes from Gold Coast Airport makes it particularly compelling for interstate buyers, frequent travellers and second-home purchasers who can access an authentic coastal lifestyle almost immediately after stepping off a flight."

The acquisition takes MAYD's active development portfolio to more than $500 million, with the North Kirra project representing one of its largest undertakings to date.

MAYD is targeting an early 2027 launch.

Joel Robinson

First look at MAYD's North Kirra mixed-use precinct

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Castle Hill, the longtime hub of the Hills District, has been one of the major beneficiaries of Sydney's Metro expansion, with improved connectivity helping drive continued population growth, development and buyer demand across the Hills District.

But despite that growth, the suburb has seen relatively few major new apartment projects brought to market over the past 18 months.

Hills District developer Reve Group is looking to fill that gap with <a href="https://www.apartments.com.au/new-apartments/nova-r-ve-castle-hill-2-garthowen-crescent-castle-hill-nsw-2154">Nova Rêve</a>, a major new mixed-use precinct on the corner of Garthowen Crescent and Old Castle Hill Road, a short walk from Castle Hill Metro Station and Castle Towers.

[smartcode_project:default project_id=152737 project_image_fid=377679]

The project will comprise three residential towers alongside a hotel, restaurants, cafes and a skybar, more than 1,600 sqm of ground-floor retail and almost an acre of landscaped gardens.

It represents the largest project undertaken by Reve Group, the development arm of the Kassis family, which has been building across the Hills District for more than 30 years through Kassis Homes.

[smartcode_project:default project_id=152737 project_image_fid=377675]

Nova Rêve also represents a significant step up from the family's first apartment development, Grand Rêve, which was delivered nearby on Garthowen Crescent.

Grand Rêve introduced larger, house-like apartment layouts and premium inclusions including Wolf and Sub-Zero appliances to the Castle Hill market.

Nova Rêve takes that approach to a precinct scale, combining the residential component with hospitality, retail and substantial public and resident landscaping.

[smartcode_project:default project_id=152737 project_image_fid=377685]

Reve Group Managing Director Sam Kassis said the project reflected the family's three decades of building in the Hills, which has evolved from trophy homes on quarter-acre blocks to larger-scale apartment development.

"Grand Rêve was our first apartment project here and it showed us what this pocket of Castle Hill could be. Nova Rêve is the refinement of that idea: not just apartments, but a place the whole suburb can use," Kassis said.

A key part of that approach is the hotel, which has been designed to operate as an amenity for the wider Castle Hill community rather than solely hotel guests.

It will include restaurants, cafes, skybars and all-day dining, alongside conference and event facilities catering to business functions, community groups and private events.

At ground level, more than 1,600 sqm of shops and cafes will open onto the surrounding streets and landscaped areas.

Almost an acre of gardens designed by Land and Form Studios will run through the precinct, incorporating pathways, seating, barbecue areas and children's play spaces.

[smartcode_project:default project_id=152737 project_image_fid=377680]

Reve Group's Romio Georges said creating an active ground plane had been central to the planning of Nova Rêve.

"There are gardens with pathways, barbecues, seating and play areas, shops and cafes opening onto the street, and a hotel with restaurants and a skybar that anyone in Castle Hill can walk into," Georges said.

The project's elevated position on one of Sydney's highest ridgelines will also provide apartments with outlooks toward the Sydney skyline, surrounding parkland and the Blue Mountains.

More than 80 per cent of the apartments will occupy corner positions, with Turner responsible for both the architecture and interiors.

&nbsp;

[smartcode_project_cta:default project_id=152737]

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Nova Rêve arrives as Reve Group bets on Castle Hill's next growth phase

A collection of just 25 large-format apartments and penthouses overlooking Goodwin Park is entering the Coolangatta market, with <a href="https://www.apartments.com.au/new-apartments/marea-residences-coolangatta-27-27a-dixon-street-coolangatta-qld-4225">Maréa Residences</a> combining a low-density, residential-only approach with uninterrupted park and Pacific Ocean outlooks.

Located at 27 Dixon Street, Maréa comprises three and four-bedroom residences alongside a limited number of dual-level penthouses, with the project positioned between Goodwin Park and <a href="https://www.apartments.com.au/developments/coolangatta-qld-4225">Coolangatta</a>’s coastal precinct.

Construction has commenced, with completion currently estimated for late 2027. Three-bedroom residences are priced from $1.8 million.

[smartcode_project:default project_id=150999 project_image_fid=374005]

The project has been designed around its northern outlook across the park, with the building’s architecture, landscaping and material palette intended to establish a connection with the neighbouring green space. The residences have been configured to maximise natural light and views across Goodwin Park towards the ocean.

Inside, the material palette incorporates timber, stone and brushed brass, complemented by curved detailing and ambient lighting. Kitchens and bathrooms carry the same natural material approach, while residences also include basement parking, storage and lift access.

Maréa’s penthouses are arranged over two levels and include private pools, adding another layer to the project’s focus on larger-format apartment living. Across the development, residences are configured with three or four bedrooms rather than the broader mix of smaller apartment types commonly found in larger projects.

[smartcode_project:default project_id=150999 project_image_fid=374010]

Resident amenity is concentrated at rooftop level, where landscaped entertaining terraces and pools take advantage of elevated views across Coolangatta and the Pacific Ocean.

The project has so far been particularly well received by local owner-occupiers and downsizers, according to Urban Activation Property Sales and Marketing Director Matt George, with the residential-only format, construction quality and northern park outlook among the features resonating with purchasers.

“The uninterrupted northern aspect overlooking Goodwin Park has been a key point of difference, with buyers attracted to the sense of serenity and open space the park provides, while still enjoying easy access to the ocean and being within walking distance of the lifestyle and amenities Coolangatta has to offer,” George said.

[smartcode_project:default project_id=150999 project_image_fid=374002]

“The combination of high-quality construction, a residential-only building, park outlook and proximity to the beach has resonated strongly with the local downsizer market.”

The Dixon Street address is within walking distance of Coolangatta Beach and the broader southern Gold Coast coastline, including the surf breaks at Snapper Rocks and Kirra. Coolangatta’s cafés, restaurants and retail are nearby, while Gold Coast Airport is also within close proximity.

[smartcode_project_cta:default project_id=150999]

Maréa Residences brings parkside apartments to Coolangatta

Melbourne developer PDG has secured Victorian Government approval for its $1.5 billion Southbank development <a href="https://www.apartments.com.au/new-apartments/the-one-1-queens-bridge-street-southbank-vic-3006">The One</a>, clearing the way for the long-dormant riverfront site opposite Crown to finally be developed.

The Minister for Planning has approved the project at 1-29 Queens Bridge Street, with the Department of Transport and Planning issuing the planning permit following its assessment.

The approval will allow PDG to develop the prominent 5,059 sqm site with a major mixed-use tower comprising premium apartments, including branded residences, a luxury hotel and boutique office space.

PDG acquired the site in late 2024, with its position directly opposite Crown's main entrance and near Melbourne's Arts Precinct making it one of Southbank's most significant remaining development opportunities.

<img alt="PDG" data-entity-type="file" data-entity-uuid="3933013e-6332-4386-b9be-089df05caf17" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.22%E2%80%AFAM.png?VersionId=sITIgBqDL0N3VNSMwWEmF5UA.uvcsRyu" />

Designed by COX in collaboration with ODO and PDG, the tower's architecture draws on the movement of the Yarra River, with six vertical pleats running the height of the sculpted facade.

The project will also see the heritage-listed Queens Bridge Hotel restored and incorporated into the development&nbsp;with new hospitality and public uses, including a rooftop venue.

A significant component of The One will be its residential amenity.

More than 5,000 sqm of resident facilities will be delivered across a single level, making it one of the largest consolidated residential amenity offerings proposed in an Australian apartment development.

The planning approval also incorporates a major upgrade of Queensbridge Square, which PDG will deliver in partnership with the City of Melbourne.

<img alt="PDG" data-entity-type="file" data-entity-uuid="73167fcd-1031-4b6f-a408-a064cfe45ed1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.17%E2%80%AFAM.png?VersionId=Pf1AEWxw6SNmBqR0zQW5lyEze.MtxgFp" />

The existing square will be revitalised as a new civic and pedestrian space along the Yarra River, strengthening the connection between the project, Southbank and the riverfront.

PDG Founder and Managing Director Vince Giuliano said the approval represented a major milestone for a site which has remained largely underutilised for more than 15 years.

“This is the most significant Planning Permit approval Melbourne has seen in recent years,” Giuliano said.

“For more than 15 years, this site has remained underutilised. This approval enables us to deliver a project that will contribute meaningfully to the revitalisation of Southbank, restore and reactivate an important heritage building, and create a new civic and hospitality destination for Melbourne.”

The latest approval follows an earlier planning permit issued by the City of Melbourne covering demolition works across part of the site at 9-29 Queens Bridge Street. Those demolition and early works are already underway.

PDG has also started generating early interest in the residential component from owner-occupiers ahead of a planned public launch in early 2027.

PDG secures approval for $1.5bn Southbank apartment development, The One

Local developer Harridan is seeking to turn its Woolloongabba apartment project into the first stage of a broader transformation of Burke Street, using a new 16-storey mixed-use building to establish a greener pedestrian connection toward the rapidly evolving Boggo Road transport and knowledge precinct.

The South East Queensland developer has filed plans for 154 apartments on the <a href="https://www.apartments.com.au/new-apartments/4-burke-street-woolloongabba-qld-4102">southern side of Burke Street</a>, where its proposal has been designed alongside a wider vision by LatStudios for the street.

That vision positions the southern side of Burke Street for buildings of 15 storeys and above, while envisaging lower-rise development of up to five storeys on the northern side to transition into Woolloongabba's existing character housing. It also proposes wider pedestrian verges, deep planting, new street trees and upgrades to the pedestrian approach to Boggo Road Station.

The Harridan development itself has been designed by Brisbane-based Arqus Design and will comprise 154 apartments across 16 storeys. The mix is weighted heavily toward two-bedroom apartments, with 121 proposed alongside 10 one-bedroom and 23 three-bedroom residences. There will typically be around 14 units per floor.

A lower-ground car park and three podium levels will accommodate 156 resident parking spaces, along with visitor and commercial parking. There will also be 154 resident bicycle spaces and 40 visitor bicycle parks.

&nbsp;

Harridan is a family-owned developer and part of the Holmwood Highgate Group, with more than three decades of development activity across South East Queensland. Its portfolio spans residential, commercial and industrial property, with current residential projects including Riverbank on Byron in Bulimba, Esperance Residences in Carina and The Precinct at Kinross Road in Thornlands.

Wooloongabba has been popular for apartment developers, particularly since the announcement of the 2032 Summer Olympics games in Brisbane.

While there have been a lot of development applications, it has failed to materialize into real supply.&nbsp;

Sarazin has been the major player in the area. They are under construction at Murcia Residences, on the fringe of East Brisbane and Woolloongabba. They have just launched <a href="https://www.apartments.com.au/new-apartments/the-stanley-residences-woolloongabba-8-trafalgar-street-woolloongabba-qld-4102">The Stanley Residences</a>, in Woolloongabba on Trafalagar Street. They also have Nuage coming soon on the nearby <a href="https://www.apartments.com.au/new-apartments/nuage-woolloongabba-14-wellington-road-woolloongabba-qld-4102">Wellington Road</a>.

First look: Harridan plans Burke Street transformation beside Boggo Road transport hub

Economy

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It is difficult to be negative about the economy when data shows that there were more new vehicles sold in 2016 than any calendar year before.
And it is not just so-called ‘standard’ vehicles being sold, but sports/luxury vehicles are taking a bigger share of total sales.
It’s not hard to see why people are updating their rides.
Car affordability is at the best levels recorded, employment is rising, interest rates are at record lows and wealth levels are at record highs.
Car affordability is even stronger when you consider that vehicles built in 2016 are far superior to those sold in the early 1970s.
Vehicle sales should remain solid in 2017. Interest rates are unlikely to rise any time soon and car manufacturers are competing hard for business, restraining prices.
In addition, all indications point to firm conditions in the job market.
The area to watch is the housing market as softer home prices could restrain car buying enthusiasm - although even that seems to be an unlikely outcome.
The services sector expansion is now accelerating at a healthy pace. In fact the Performance of Services index is now showing the fastest pace of expansion in almost 10 years.
And more importantly the resurgence in activity is broad-based with all five components of the index recording strong gains.
In particular the lift in new orders and the employment sub-indices bode well for hiring in coming months.
It was interesting that respondents noted a variety of reasons for the lift in service sector activity - from stronger customer demand, a lift in mining sector activity, to a lower Australian dollar and “good agricultural harvests”.
As we have been saying for a couple of months, the result mirrors the lift in activity noted across internal Commonwealth Bank Indicators like the Business Sales Indicator.
<a href="https://www.propertyobserver.com.au/images/2017/01/05/CS-1.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/2017/01/05/CS-1.jpg" alt="">
The Reserve Bank will be quietly confident on how the economy is panning out.
The key will be how non-mining business investment evolves over the next six months. CommSec expects no change to interest rates over 2017.
According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totalled 98,763 in December, down 0.9 per cent on a year ago.
In 2016, a total of 1,178,133 new vehicles were sold – a record for a calendar year.
Sales by State: NSW (397,563), Victoria (326,269), Queensland (233,026), Western Australia (100,234), South Australia (71,738), Tasmania (19,751), ACT (18,816) and NT (10,736).
Respective market shares by vehicle type were: passenger (41.3 per cent), SUV (37.4 per cent), light commercial (18.5 per cent), and heavy commercial (2.8 per cent).
The top-five segments by volume were small cars (224,450, down 4 per cent), medium SUV (172,194, up 16.5 per cent), 4×4 ute (146,820, up 10 per cent), large SUV (142,495, up 2 per cent) and small SUV (110,414, up 2 per cent).
The sub-total of sales by buyer type for 2016 was: private (571,544, down 7 per cent), business (472,156, up 13 per cent), government (40,989, down 1.4 per cent) and rental (60,335, up 6 per cent).
Buyers using their ABN to buy a single car count as a business sale, while novated leases count as private.
Leading vehicle sources: Japan (325,689), Thailand (285,465), Korea (162,642), Germany (87,392) and Australia (87,096).
The top-selling vehicle was the Toyota HiLux, ahead of the Toyota Corolla, Hyundai i30, Ford Ranger, Mazda 3, Toyota Camry, Holden Commodore, Mazda CX-5, Mitsubishi Triton and Hyundai Tucson.
Top makes for 2016: Toyota (14th year in succession) with 209,610 units (up 1.6 per cent), ahead of top full- importer Mazda (118,217, up 3.7 per cent) and Hyundai (101,555, down 0.4 per cent). Holden finished outside the top-three, in fourth place on 94,308 (down 8.4 per cent), holding out a resurgent Ford (81,207, up more than 15 per cent).
The Australian Industry Group Australian Performance of Services Index lifted by 6.6 points to 57.7 in December – marking the highest result since May 2007.
AI Group notes “All five activity sub-indexes in the Australian PSI® were above 50 points and indicate expansion in December.
Sales jumped 14 points in December, up to 62.1 points from 48.1 in November.
New orders rose by 6.4 points to 60.4 points. Stocks lifted 5.7 points to 52.6 points, growing in ten out of the past eleven months.
The employment subindex picked up the pace, growing by 4.3 points to 56.6 points.”
<a href="https://www.propertyobserver.com.au/images/2017/01/05/CS-2.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/2017/01/05/CS-2.jpg" alt="">
“A number of respondents to the Australian PSI® noted that conditions were more positive in December with: customer demand strengthening; increased orders from the mining sector; a lower value for the Australian dollar; interest rates remaining stable and (for regional services) good agricultural harvests.
Overall, there was a sense of increased confidence from respondents across many services sub-sector.”
The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month.
The figures highlight the strength of consumer spending as well as conditions facing auto &amp; components companies.
The economy appears to be regaining momentum.
But as always more data is required to confirm the change in direction.
Certainly confidence levels are healthy, providing optimism early in the New Year.
The Reserve Bank is comfortably on the interest rate sidelines.
Savanth Sebastian is a senior economist for CommSec.
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j.ballantyne1990-6AQqhLzZaK

Difficult to be negative after record car sales in 2016: Savanth Sebastian

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Carol Schwartz has been appointed to the Reserve Bank of Australia (RBA) board, replacing Heather Ridout.
She describes herself as "a dove with a hawk's wings" when it comes to prioritising economic growth and inflation.
"It's a balance, isn't it," Schwartz said in an interview with Bloomberg.
"You have to be very careful about growth, you always have to have an eye for growth. But at the same time, obviously, inflation has an impact that one has to be incredibly aware of."
Schwartz, with a background in property and retail, will commence a five-year term from mid-February.
Schwartz has previously served as a non-executive director of the Bank of Melbourne, the chair of Industry Superannuation Property Trust and as national president of the Property Council of Australia.
Three of the RBA's nine board members are women.
Schwartz said the real estate industry must always be "vigilant" about the outlook: "Looking out for signs of overheating as well as looking out for signs of great opportunity.
"The property market always has pockets of opportunity, but at the same time one needs to be aware of those areas where things may be overheating and take a step backwards."
"The economy is patchy," Schwartz said, when asked for her take on it.
"As it always is. You've always got areas that are doing well and areas that aren't doing so well, and periods of time even in one year, particularly in retail where you might have several good months and then unexpectedly several bad months. And there are a lot of factors that impact on that."
Her current directorships include Stockland, Qualitas Property Partners and Trawalla Group.
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jchancellor-FAypfDUnLy

Carol Schwartz joins RBA board

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GUEST OBSERVER
The economy contracted by 0.5 percent in the September quarter after an upwardly-revised 0.6 percent increase in the June quarter (previously up 0.5 percent).
The Aussie dollar fell half a cent in response. It was the first contraction in the economy for 5½ years.  
Annual economic growth slowed from 3.1 percent to 1.8 percent.
Contribution to growth: The biggest contribution to growth came from household investment (+0.3 percentage points) followed by inventories (+0.1pp). The biggest drag on growth was public investment (-0.5pp) followed by net exports (-0.2pp) and dwelling investment, ownership transfer costs and commercial construction (all -0.1pp)
Income: Real gross national income rose by 0.9 percent in the September quarter to be up 3.2 percent on the year. In nominal terms GDP lifted 0.5 percent in the quarter and rose by 3.0 percent over the year.
Productivity: Gross value added per hours worked in the market sector fell by 0.8 percent in the September quarter after rising by 1.7 percent in the June quarter. Annual growth was 0.7 percent.
Industry sectors: Eleven of the 19 industry sectors expanded in the September quarter. The strongest sector was Agriculture, forestry and fishing, up 7.5 percent and adding 0.2 percentage points (pp) to growth. Finance and insurance services added 0.1pp. The Construction sector fell by 3.6 percent in the quarter (-0.3pp). Mining, “Other services” and Rental, hiring and real estate services all took 0.1pp off growth.
What does it all mean?
This will turn out to be just a blip on the radar screen, but a very important blip. Many Australians have become complacent. And that includes businesses and politicians. The only way the economy can grow is by Australians spending, investing and employing. Australians didn’t do this in the September quarter. The Reserve Bank has been intimating for some time, monetary policy is reaching its limits. Infrastructure spending may prove useful in coming quarters in providing fresh momentum to the economy.
In the September quarter the economy was hit by a perfect storm. Not only was there the reaction to the UK ‘Brexit’ vote, there was also the Federal election and then there was the uncertainty about the US elections. And clearly, when there is a lot of uncertainty around, consumers and businesses tend to delay decisions to spend, invest and employ. A big fall in public investment also accounted for the bulk of the contraction of activity in the quarter.
While spending measures of the economy were weak in the September quarter, income measures were actually quite strong. And the farm sector was also strong in the quarter and should also be a key contributor to growth in coming quarters. For those who may have forgotten after 25 years of consistent economic growth, a ‘technical recession’ involves two consecutive quarters of contraction in the economy. We don’t believe there are grounds for another quarter of contraction. And indeed it would be amazing if there was some variant of ‘recession’ with a jobless rate of 5.6 per cent.
The Reserve Bank is always looking ahead and so must we. The outlook for the economy remains bright with record home building, a record winter crop, unemployment at 3½-year lows and super-low interest rates. Already the data for the December quarter has been more upbeat including retail spending and job ads.
The Reserve Bank warned yesterday that annual economic growth would slow before it picked up in 2017. That is our expectation also. The economy should grow near its ‘potential’ rate of 3 per cent in 2017. We continue to believe that interest rates will remain on hold in coming months. But no one will be thinking of rate hikes any time soon.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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cjames-5S2v74qSNK

Economy shrinks, wake-up call for Australia: CommSec's Craig James

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<div>The Australian National Accounts recorded that real GDP growth came in at a seasonally adjusted -0.5 percent for the third quarter and +1.8 percent for the year. </div>
<div> </div>
<div>Oops.</div>
<div> </div>
<div>This was the first negative quarterly result for GDP since the Queensland flood-affected quarter of March 2011, and only the fourth such result since Australia's last recession in 1991. </div>
<div> </div>
<div>With a negative contribution of -0.2ppts net exports were a drag on growth this time around, and there was a big drop in public capital expenditure (for a contribution of -0.5ppts) after a surge of government investment last quarter, summarily in helicopters, healthcare, and hepatitis drugs.</div>
<div> </div>
<div>Household consumption contributed 0.3ppts to growth this quarter, but there wasn't much joy elsewhere. </div>
<div> </div>
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<div> </div>
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<div class="separator"> </div>
<div>With downward revisions to previous quarters, this takes annual GDP growth all the way down to +1.8 percent. </div>
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<div>Nominal GDP fared somewhat better, growing by +0.5 percent in the quarter, and by +3 percent over the year.</div>
Income boost
<div>It's often been pointed out that in a country such as Australia with its volatile bulk commodity prices, real GDP isn't always an ideal measure of how things are tracking. </div>
<div> </div>
<div>In this quarter, for example, there was a large +4.4 percent jump in the terms of trade, meaning that the index is now up by +1.4 percent over the past year. </div>
<div> </div>
<div>Given that the terms of trade index has been falling since Q3 2011, this is hugely welcome news!</div>
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<div class="separator"> </div>
<div>Behind the scenes, of course, commodity export volumes have been ramping up over time.</div>
<div> </div>
<div>Thus while real GDP contracted, real gross national income, real gross disposable income and real net national disposable income all rose to record highs in the September quarter, and we can expect to see further gains in Q4. </div>
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<div>In real terms, gross national income increased by +0.9 percent over the quarter and +3.2 percent over the year. </div>
<div> </div>
<div>Essentially, then, this this quarter has been the mirror image of the dynamics we've seen in previous quarters, shifting to strong income growth and weaker GDP growth.</div>
<div>Two-speed</div>
<div> </div>
<div>Research by SGS Economics and Planning has shown that Sydney and Melbourne have beendominating economic growth, while many regional economies are presently running slower as they adjust to life post-resources boom. </div>
<div> </div>
<div>State final demand was very weak in Western Australia at -3.8 percent as capex continues to work through its decline. </div>
<div> </div>
<div><a href="/images/2016/12/08/GDP4.jpg" target="_blank">Click to enlarge</a></div>
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<div><img src="/images/2016/12/08/GDP4.jpg" alt=""></div>
<div> </div>
<div>At the industry level, construction was the biggest loser, contracting by -3.6 percent, and swiping some -0.3ppts from GDP growth. </div>
<div> </div>
<div>Compensation of employees grew by +1.3 percent over the quarter and a positive +3.1 percent over the year, while the household savings ratio ticked down to 6.3 percent. </div>
<div> </div>
<div>I'll look at the impact on household incomes and expenditure in a separate post. </div>
The wrap
After 100 consecutive quarters without a recession, the economy posted a negative GDP result for the third quarter, but real national income measures surged to a record high.   
<div>Whether or not we experience a technical recession next quarter is open for debate, but it looks to be unlikely based on the recent growth in retail spend. </div>
<div>
 Overall, strong public investment figures in the first half of the year masked a softening underlying trend in growth in the economy. </div>
<div> </div>
<div>An annual GDP growth figure of +1.8 percent feels much more in line with the metrics we've seen elsewhere, including low employment and wages growth, soft inflation, and a budget in deficit. </div>
<div>
 If hours worked are said to be the best measure of the health of the economy, then the conclusion is clear: the economy stuttered in the first half of 2016, although there was at least a moderate improvement of +0.5 percent in Q3. </div>
<div> </div>
<div><a href="/images/2016/12/08/GDP7.jpg" target="_blank">Click to enlarge</a></div>
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<div class="separator"><img src="/images/2016/12/08/GDP7.jpg" alt=""></div>
<div> </div>
<div>In the face of an obviously weaker result, a key question for the government now is whether it uses low yields to borrow and invest in infrastructure, as the Reserve Bank doesn't sound particularly keen on cutting the cash rate too much further!</div>
<div> </div>
<div>
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>. 
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.
</div>
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pwargent-M4siyDbqQY

A recession looks unlikely: Pete Wargent

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GUEST OBSERVER
Australian third quarter GDP data was very weak, declining by 0.5 percent, missing consensus estimates for a 0.1 percent fall. 
Annual GDP growth has now declined to 1.8 percent, the lowest level since March 2009. All components of GDP were weak in the September quarter and the key points are:
Soft-ish consumer spending growth (up by 0.4 percent over the quarter resulting in a contribution of just 0.3 percentage points to quarterly GDP growth) as evidenced by poor retail sales outcomes over the quarter, although this may have been impacted by election uncertainty and poor weather;
A fall in dwelling investment (-1.4 percent qoq or a 0.1 percent point detraction), but this follows a few quarters of very strong growth;
A marginal lift in private business investment (+0.1 percent or a flat contribution), with a rise in machinery and equipment investment offsetting  a 1.3 percent qoq fall in non-residential construction as the slump in mining investment continues to impact. However, underlying private investment was actually weaker with the headline being boosted as a large asset transfer from the private to the public sector in the June quarter washed through;
A large decline in public spending (-2.4 percent qoq or a 0.6 percent point detraction) with headline government investment looking particularly low because of the asset transfer in the June quarter. Even adjusting for theasset transfer, public spending was still low in the September quarter;
<ul>
<li>A small contribution from total inventories (+0.1% point contribution to growth); and</li>
<li>A small detraction from net exports (-0.2% point detraction from growth) with import volume growth stronger than export volumes.</li>
</ul>
<a href="/images/2016/12/08/image004.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/08/image004.png" alt="">
Source: ABS, AMP Capital  
This is only the fourth quarter of GDP contraction since the last recession ended in 1991 – with the last three being in the December quarter 2000 (after the introduction of the GST), December quarter 2008 (the GFC) and March quarter 2011 (mainly because of a hiccup in exports). 
<a href="/images/2016/12/08/image005.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/08/image005.png" alt="">
Source: ABS, AMP Capital 
While the GDP contraction in the September quarter will no doubt invite talk of a recession (defined as two consecutive quarters of falling GDP) growth is likely to bounce back in the December quarter avoiding a recession so there is no reason to get too gloomy. 
A lot of the factors which drove the weak third quarter outcome will not repeat in the fourth quarter GDP numbers. Weak September quarter GDP partly looks like payback for stronger than expected GDP growth over the year to theJune quarter of 3.1 percent.
Looking forward, there is going to be a further ramp up in resource export volumes, non-residential building approvals are lifting considerably, mining investment is getting closer to a bottom, retail sales growth trends have picked up again, there is still a lot more dwelling construction in the pipeline, state government budgets indicate a lift in public investment and the rebound in commodity prices with the terms of trade up 4.5 percent in the September quarter tells us that the income recession in Australia is over.
So we expect GDP growth to lift back to around a 2.5 percent pace in the current quarter and through 2017. 
The Australian dollar has remained surprisingly resilient on the poor data, dropping from 0.7465 to around 0.7430 and the share market actually rose 0.2% at the time of writing – indicating that markets also expect growth to bounce back. 
But despite our expectation that recession will be avoided and that growth will bounce back, growth is still likely to be fragile and constrained. In an ideal world now would be a time for some fiscal stimulus focussed on infrastructure spending. But with public debt well up from pre GFC levels and the Government focussed on reducing the budget deficit and the (increasingly difficult) task of maintaining Australia’s AAA credit rating this looks unlikely.  
As such the pressure is likely to remain on the RBA. With the RBA likely to reduce its circa 3 percent growth forecasts and further delay the expected return of inflation to its 2-3 percent target in its February Monetary Statement we remain of theview that it will cut rates again next year. The need to offset increases in bank mortgage rates that are being driven up by the rise in global bond yields and the desire to push the $A lower are additional reasons to expect further RBA monetary easing.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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The Australian economy hits an air pocket - but recession unlikely: Shane Oliver

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GUEST OBSERVER
Here are the six standout charts over the past week covering home prices, Australian All Ordinaries Accumulation index, business investment, planned business investment, Nymex oil price and US 10-year bond yields.
<a href="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.06.56%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.06.56%20PM.png" alt="" width="760" height="500">
<a href="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.07.06%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/05/Screen%20Shot%202016-12-05%20at%201.07.06%20PM.png" alt="" width="654" height="214">
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
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The six standout charts for this week: CommSec's Savanth Sebastian

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<img src="https://counter.theconversation.edu.au/content/69398/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Despite the well publicised closure of some manufacturing sectors in Australia, manufacturing isn’t dying.
Instead, like industry around the world, it’s undergoing a period of significant change as new, disruptive technologies and economic realities take hold and new markets emerge.
There is a role for the manufacturing sector in Australia. Through interviews with 56 stakeholders, three workshops and a survey of industry and government organisations, as well as leading researchers, CSIRO identified major growth opportunities and what the manufacturing sector needs to do to achieve them.
Currently Australian manufacturing contributes 6.05% of Gross Domestic Product (GDP), exports A$96.1 billion of goods and employs 856,000 people. This has fallen from a high in 1995, when it contributed to 14% of GDP and employed more than a million people. 
High wages, geographical remoteness and a small dispersed local market are some of the reasons for these changes. However consumers are also changing what products they buy which then impacts the type of products made.
Major companies like Boeing and General Electric now look to the world using global supply chains for components for their final product, so Australia has to compete globally. 
The innovation resulting from science and technology, such as automation, digitisation and new materials, has changed the equation of what it means to be a manufacturer. Manufacturing is no longer a basic industry that employs low-skilled workers.
Over the next 20 years, Australia’s manufacturing industry must transform into a highly-integrated, collaborative and export-focused “ecosystem” that provides high-value customised solutions contributing to global supply chains.
Our research brought up some exciting examples of Australian companies that have already embraced this evolution, setting a standard to follow.
<h2>Customised high-margin solutions</h2>
We found that demand for more expensive bespoke products is replacing mass-produced products relying on value from producing a lot for the market. New materials, automation, biotechnology and new chemical processes have driven this innovation in manufacturing. 
These new technologies enable a new level of customisation. Products like personalised medical implants and functional foods and clothing are already possible thanks to the combination of design services and superior components (such as 3D printing).
Small to medium enterprises (SMEs) make up 97% of Australia businesses. So customisation is an ideal recipe for Australian SMEs to achieve global reach without the need for producing more goods than their competitors.
An example of an Australian company doing this well is Oventus. They produce an O2Vent mouthpiece for those that suffer sleep apnoea. Oventus uses a 3D scanner to map a patient’s mouth, then 3D prints a custom-made mouthpiece that helps stop dangerous pauses in sleep at night. Its custom fit and relative comfort attract a price premium. The company recently listed on the Australian stock exchange and is about to go global.
<h2>Collaboration</h2>
Too often Australian manufacturers focus on the rival across the street, rather than the looming competition over the horizon.
Our research shows manufacturers need to partner among themselves, either through business partnerships or increased collaboration. Nautitech and Northern Light Technologies Australia, for example, were brought together by a mining company to improve underground communications. 
These two companies combined hardware from one company and software from the other to provide mobile Wi-Fi coverage for mine sites. It allows miners to monitor worker safety, fleet optimisation, machine performance and also allows autonomous mining and productivity improvements. 
<h2>Global supply chain integration</h2>
In a global marketplace, Australia cannot stand on its own. The Australian market alone is too small - our population is the size of Shanghai, China. 
Australia has few multinational companies manufacturing here. However multinational companies do source components from the best suppliers globally and herein lies the opportunity for Australia.
For example, manufacturer ANCA Tools delivers specifically designed parts to Japan. These parts are made using the company’s multi-axis grinding machines. 
These machines, designed and built in Australia, are automated and wired up for flexible and precision manufacturing. The components are integrated into Japanese customers’ unmanned, factory-wide automated production systems.
Manufacturers need to integrate into international supply chains; using Australia’s advanced technology industry and research sector, to stand out from the crowd. One example of this highlighted from our research is Carbon Revolution, a company that pioneered the commercial production of carbon composite car wheels. These wheels are made from a single piece of material. 
Carbon Revolution is supplying Ford with wheels for the Mustang Shelby GT350R, making it the first company in the world to supply mass produced carbon fibre wheels on standard equipment for a major automaker.
The wheels weigh up to 50% less than conventional aluminium equivalents and reduce carbon emissions by up to 6%. Carbon Revolution is now investigating opportunities in aerospace and industrial markets.
<h2>Increased role for the research sector</h2>
Australia’s research sector can play a critical role in the future of Australian manufacturing, providing the significant technological innovation needed to drive future prosperity.
Publicly funded research agencies in Australia are already building stronger industry engagement. In our research, Australian manufacturers have identified the science and technology gaps that need filling. 
These companies want to use research results to be able to differentiate, make manufacturing processes more efficient, monitor in real time and drive decision making with data. Australian research institutions need to adapt to these demands.
The establishment of open access hubs such as Lab22, the Australian National Fabrication Facilities (ANFF), industry collaboration spaces in research organisations, researchers in business, industry PhDs and internships are all examples of initiatives to link the research and manufacturing sectors.
Australia has a high level of education, an excellent research sector, vast natural resources, a reputation for quality, keen SMEs and close proximity to a burgeoning Asia. The strengths far outweigh the weaknesses.
Cathy Foley is deputy director and Science Director Manufacturing Flagship CSIRO, and can be contacted <a href="https://theconversation.com/profiles/cathy-foley-1066" target="_blank">here</a>.
Keith McLean is director, CSIRO Manufacturing, CSIRO and can be contacted <a href="https://theconversation.com/profiles/keith-mclean-318305" target="_blank">here</a>.
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The Australian manufacturing industry is not dying, it’s evolving: CSIRO study

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On August 22, I wrote a note in which I concluded:
<ol>
<li>Record low interest rates have not been effective in stimulating investment to close the savings/investment imbalance. A change in policy from governments on infrastructure and structural reform is urgently required. 
</li>
<li>Central banks are exacerbating the imbalance with (quantitative easing (QE) policies. With these policies now generating negative yields and pressuring the banking system while sending confusing signals on risk free rates there is an urgent need for these policies to be reviewed and abandoned.} 
</li>
<li>When these QE policies are finally abandoned, as they surely must be, there will be a huge re-pricing of risk free assets with rates heading in the direction of nominal GDP growth, although the pace of this adjustment will still depend on the other progress which governments have made in closing the savings/ investment imbalance.</li>
</ol>
At that time the US 10 year bond rate was 1.54% while the Australian 10 year bond rate was 1.9%. Today these rates stand at 2.35% and 2.75% respectively.
I nominated nominal GDP growth in the US at around 4% (2% real growth and 2% inflation).
The US bond rate has risen about a third of the way towards what I would call that “equilibrium” despite no clear progress on lifting investment although, of course, markets are pre-emptive.
In the period 1992-2002 when we had more of an alignment between savings and investment, and bond rates were broadly in line with nominal GDP growth, we saw that investment in the US was growing at around 8% compared to the average growth rate in recent years of around zero.
The recent rise in bond rates can be considered in two periods – before and after the Presidential election.
The US bond rate started to rise from around late September from 1.55% to reach 1.85% on the eve of the US presidential election.
A key catalyst for that move was a change in tone from both the Bank of Japan (BOJ) and the European Central Bank (ECB). In the case of Japan policy was adjusted to target a level of the 10 year Japanese Government Bond (0%) rather than continuing to expand the balance sheet.
In the case of the ECB, prospects of further increasing the €80 billion of monthly asset purchases took a downturn and while there is no signal from the Board that tapering is imminent the debate around the effectiveness of QE and negative interest rates has been vigorous both in the market and amongst the officials.
Finally, I expect that markets believed that whoever was elected to the presidency we would see a measure of fiscal stimulus.
Since the election of Mr Trump, the US 10 year Treasury bond rate has risen from 1.85% to 2.35% - the total increase in bond rates, from the lows (80 basis points), represents about a third of the move towards my “equilibrium” target of 4% (250 basis points). As we expect with markets, this adjustment has occurred purely through a change in expectations. I would not expect this to progress much further until we see concrete evidence around progress on infrastructure and reform.
So what else in my “wish list” apart from a significant change in ECB and BOJ approaches has occurred?
The second part of the “wish list” was “change in policy from governments on infrastructure and structural reform”.
Do Mr Trump’s policies provide some comfort in that direction?
Recall that the first policy he referred to in his acceptance speech was to “rebuild” America. Given my emphasis on the need for aggressive infrastructure investment to lightening rod the US economy out of secular stagnation, I was impressed.
Until I looked into the details of his infrastructure policy. The current policy is to invest US$1 trillion (around 5% of GDP) in public infrastructure, over 10 years, with 85% to be financed from the private sector. Unless his team is aware of a massive list of public assets that could be privatised with the funds being used to finance the road/bridge/inner city spend, this policy is likely to fail due to a lack of support from the private sector.
My view is that he needs to redirect a large amount of the tax package towards direct infrastructure investment. The current tax package, which includes reducing the corporate tax rate from 35% to 15%, is estimated to cost (according to the <a href="https://crfb.org/donald-trump" target="_blank">Committee for a Responsible Federal Budget</a>) around US$5-6 trillion over 10 years. The corporate component is around 75% of the total package cost with the remainder representing the cost of lowering personal tax rates. But the <a href="https://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full" target="_blank">Tax Policy Centre estimates</a> that 47% of the benefits of the personal cuts will go to the top 1% of income earners.
The starting point for the total government debt position also threatens the tax package. When Reagan adopted his “supply side” economic policies, government debt stood at 24% of GDP compared to 78% today. The tax package could lift debt to around 110% of GDP over the next 10 years.
So my view on policy as it stands is that a much larger and realistic infrastructure package needs to be embraced at the expense of a significantly more modest tax package.
What about reform?
Reform is required to convince businesses that growth is in prospect and therefore investment should be lifted.
US firms pay US taxes on income generated anywhere in the world while allowing the firms to defer tax on these earnings by keeping the money offshore. Trump has considered offering companies a window tax “holiday” to repatriate some of the $2 trillion held outside the US. Such reform would 'spark' new investment if firms anticipated stronger growth in the US. An angle might be to 'link' the tax savings to the proposed private funding of infrastructure.
Currently there is some market belief in his claim to “clean up regulation”, with the unwinding of Dodd-Frank (a complex banking regulation) being the most comprehensive. Policies to unwind excessive regulation and some early successes in that regard will be just as crucial as a much more aggressive infrastructure policy to lift confidence in growth prospects.
The moderated approach to QE and negative interest rates by the ECB and BOJ started the move away from unrealistically low rates.
The emphasis in the Trump rhetoric on infrastructure and reform has been a very welcome development. However, at this stage, Trump’s policies do not signal a clear commitment to infrastructure and there does not appear to be a list of “achievable” reform initiatives.
Markets and firms will need to see clear evidence of Trump’s ability to implement ambitious policies before I could declare that we are on a steady path towards equilibrium and 4% bond rates.
Bill Evans is chief economist at Westpac.
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bevans-rYk9SxEa4r

Trump needs to find balance between infrastructure and tax priorities: Westpac's Bill Evans

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GUEST OBSERVER
Australia has a new “two-speed” economy that comprises: (i) NSW and Victoria (driven largely by Sydney and Melbourne); and (ii) the rest of Australia.
The size and relative strength of the NSW and Victorian economies means that economic data presented at the national level is masking weakness throughout the rest of Australia.
Economic activity in NSW and Victoria, along with strong dwelling price growth in Sydney and Melbourne, is likely to see the RBA sit on the sidelines. But the rest of Australia could probably do with more policy easing. 
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.22.22%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.22.22%20AM.png" alt="">
During the mining investment boom it was fashionable to talk about Australia’s “two- speed” economy. Surging commodity prices drove a spectacular lift in activity in the resources sector that sent the WA, QLD and NT economies into full blown growth mode.
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.23.31%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.23.31%20AM.png" alt="">
Meanwhile, relatively high interest rates (compared to other advanced economies) and a strong AUD weighed heavily on the rest of Australia. As such, the term “two-speed” was coined to characterise the Australian economy. 
Fast forward some six years and Australia yet again finds itself with a “two-speed” economy. But this time it’s NSW and Victoria that are driving demand and employment growth while the rest of Australia is feeling the pinch (chart 1). In fact, it’s largely Sydney and Melbourne propping up national outcomes.
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.24.46%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.24.46%20AM.png" alt="">
Capacity utilisation is high in Australia’s two largest cities and demand growth is strong, courtesy of incredibly low interest rates. As a result, the NSW and Victorian economies have performed much better than the rest of Australia. 
The big influence that NSW and Victoria have on the national figures means that pretty soft conditions throughout the rest of Australia have flown under the radar. In fact, economic outcomes in most regions of Australia are probably weaker than the national figures are suggesting unless you’re in Sydney or Melbourne. There are some exceptions, notably the ACT, but the generalisation holds for most places. 
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.25.47%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.25.47%20AM.png" alt="">
In this note we look at how the Australian economy is faring on the new “two-speed” basis. We slice the economy into two pieces – (i) NSW &amp; Victoria (termed VicNSW); and (ii) the rest of Australia (termed ROA). For dwelling prices that are published on a capital city basis we split the data between Sydney &amp; Melbourne (SydMel) and the remaining capital cities (ROA). Basically we are trying gauge how the rest of the Australian economy is going when you strip out NSW and Victoria (or Sydney and Melbourne). Of course, it can be argued that if you exclude the strongest parts then all you are left with is the weakest bits. But that is precisely the point. We want to better understand how the rest of the Australian economy is going outside of NSW and Victoria. 
The numbers – setting the scene.
To understand what we are analysing it makes sense to briefly look at the size of our two pieces. By Gross State Product (GSP), which is effectively output, NSW is worth 32% of the national pie and Victoria 221⁄2%. So our VicNSW economy is worth 541⁄2% of the national economy which leaves the ROA comprising 451⁄2% (chart 2). By population, NSW has 32% of Australia’s residents and Victoria clocks in at 25%. This leaves 43% of people residing in the ROA. By capital city, 64% of people who live in NSW are in Sydney and 75% of Victoria’s residents are in Melbourne. For the ROA, 62% of people are in the capital cities (chart 3). So our VicNSW and ROA split 
Population growth
We kick off with population growth because it heavily influences aggregate growth rates like output and employment. The latest figures show that in the year to QI 2016, population growth in VicNSW was running at 1.6% while it was growing at 1.1% for the ROA (charts 4 and 5). This is a material difference. It largely reflects two forces (i) interstate migration, in particular from WA and SA to Victoria due to a lack of job opportunities; and (ii) a significant proportion of overseas migrants settling in either Sydney or Melbourne.
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.26.53%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.26.53%20AM.png" alt="">
We need to keep the population growth rates of VicNSW and ROA in mind when looking at the economic data because the ROA is at a “handicap” of about 0.5%pa. Put another way, if the ROA is clocking in at 0.5%pa less than VicNSW for growth rates then performance per capita is effectively the same. We consider this to be important because differing population growth rates can give a misleading impression of economic performance. And per capita measures are a better barometer for gauging changes in living standards (see here). As our analysis shows, even accounting for the 0.5%pa difference in population growth, VicNSW is performing far better than the ROA. 
State Final Demand
State Final Demand (SFD) is basically the sum of household and government expenditure and investment. It does not include exports and is therefore a better measure of demand (i.e. the total value of goods and services that are sold domestically) than GSP which includes exports.
The data shows that demand growth has been strong in VicNSW while it has been contracting throughout the ROA since mid-2014 (chart 6). The decline in SFD throughout the ROA reflects falling business investment and weak consumption growth. SFD has been hit particularly hard in the mining regions of WA, QLD and NT where investment in the resources sector has fallen sharply (chart 7). SFD growth has been tepid in SA and Tas leaving the ACT as the only bright spot. All up, demand growth in the ROA is consistent with very soft economies.
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.27.49%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.27.49%20AM.png" alt="">
Strong demand growth in VicNSW has been assisted by the positive wealth effect from rising dwelling prices. Higher asset prices have supported household consumption growth and dwelling investment in Australia’s two largest states. These two economies did not experience a downturn in mining investment and were able to benefit from both the fall in interest rates and the AUD. 
Employment growth
There is plenty of evidence of our new “two-speed” economy in the labour market data. Jobs growth has slowed nationally. But the slowdown in jobs growth for the ROA has been sharp. In fact, there has been a contraction in the level of employment for the ROA through the year to October (chart 8). The number of people working in the ROA has fallen by 40k over the past year. The reality is that jobs growth in Australia has been driven by NSW and Victoria over the past year. For the ROA, the labour market is incredibly weak. In some states, conditions in the labour market are commensurate with a recession, particularly WA (chart 9). 
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.28.56%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.28.56%20AM.png" alt="">
Unemployment rate
The national unemployment rate has been trending down over the past year thanks to a decline in participation. But when we look at the economy through our “two- speed” lens it becomes apparent that the unemployment rate for the ROA has been stuck above 6% for two years (chart 10). It has basically trended sideways since mid-2015 while the unemployment rate has been falling in VicNSW. A disappointing story for the ROA which reflects a decline in the level of employment offset by a fall in participation. 
<a href="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.30.13%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.30.13%20AM.png" alt="">
Of course new jobs have been “created” in the jurisdictions that comprise ROA. But there have also been a lot of job losses, primarily in the mining and manufacturing sectors. To be fair to our Territories, the unemployment rate is low in the ACT and NT. But it’s well above the level associated with full employment (considered to be around 5%) in QLD, SA, WA and Tasmania (chart 11).
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.31.13%20AM.png" alt="">
In our view, the jobless rate for the ROA is likely to sit a touch above 6.0% over the next six months. It will continue to be a different story in VicNSW and we see the unemployment rate holding at around 51⁄4%. A big lift in public investment in NSW should keep the unemployment rate anchored around 5%. 
It’s worth noting here that the unemployment rate is not proving as useful as usual to determine the amount of slack in the labour market. That’s because underemployment has bene rising while the unemployment rate has been falling due to the casualisation of the workforce (see here). As a result, wages growth has been easing.  
Business investment 
Investment in VicNSW has trended up recently because of a lift in capex in NSW. But for the ROA business investment is down 17.2% through the year to QII 2016 (chart 12). The big decline has been driven by a huge fall in spending in QLD and WA because of the downturn in mining capex. There has also been a decline in capex in SA, Tas, and NT. For the ROA, only the ACT has posted a lift in business investment. This is a pretty poor result considering the stimulus that has come through from lower interest rates and a lower AUD. It should be a concern to policymakers.
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.32.13%20AM.png" alt="">
We expect business investment to continue to decline in the ROA as resource related projects are completed. The pace of the downturn, however, will start to slow as the worst of the downturn in mining capex is now behind us. The outlook for the non- mining part of the economy remains mixed. Our forecasts have non-mining capex lifting a little over 2016/17 which should see VicNSW post a further modest lift in business investment. 
Dwelling Prices
National dwelling prices have risen substantially over the past 31⁄2 years. But the data shows that the lift in dwelling prices has largely been a Sydney and Melbourne story (chart 13). Demand for housing has been strong in Australia’s two largest cities, driven by a variety of factors which include: (i) interest rate cuts; (ii) a high level of investor demand; (ii) foreign investment; (iii) strong population growth; and (iv) some supply issues (particularly in Sydney).
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.33.24%20AM.png" alt="">
For the ROA, however, dwelling price growth has been much more modest. In fact, dwelling prices have been falling for a few years in Perth (chart 14). Price rises in most of the other capital cities have been significantly lower than those in Sydney in Melbourne.
Commentators often make the mistake of generalising about dwelling prices in Australia and assume that the housing market is homogeneous. But the data shows that there is a significant divergence between price growth across Australia’s capital cities. 
Building approvals
Strong dwelling price growth in Sydney and Melbourne has translated into a big lift in building approvals, particularly for apartments. For the ROA, however, building approvals have eased. On a rolling annual total basis dwelling approvals are down 7.1%pa for the ROA (chart 15). There is a bit of a multispeed story for approvals in the ROA. There has been a big fall in approvals in WA as vacancy rates rise and dwelling prices fall. Approvals in QLD have actually been quite strong and a big lift in apartment supply will hit the Brisbane market over the next few years. But when we look at the ROA as a collective, dwelling investment will cool. For VicNSW, however, there is still a lot of residential construction in the pipeline. The supply response is welcome given the big lift in dwelling prices. 
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<img src="/images/2016/11/22/Screen%20Shot%202016-11-22%20at%2010.35.04%20AM.png" alt="">
Are there implications for monetary policy?
The RBA has recently shifted from an implied easing bias to a neutral tone. And market pricing for a rate cut has receded (chart 16). We think the RBA’s reluctance to ease policy further is generally related to the strength of the NSW and Victorian economies, in particular the exceptionally strong housing markets of Sydney and 
Melbourne, and the lift in commodity prices. But the economic data suggests that the ROA could do with more policy easing.
Last week’s wages and employment data were weak. Normally, softness in the labour market and below-target inflation would imply that policy easing is forthcoming. A lower cash rate would, among other things, push the AUD down which would boost activity in Australia’s tradables sector. But clearly the RBA has a degree of discomfort at the strength of dwelling price growth in Sydney and Melbourne that has taken a near term rate cut off the table.
The lesson here is that the new “two-speed” economy means that current monetary policy settings are likely to be suboptimal for the ROA outside of Sydney and Melbourne. If the Sydney and Melbourne property markets stall or falter then policy easing will probably come back onto the agenda because the ROA could do with more stimulus. Of course that stimulus could also come via fiscal policy as we have previously argued (see here). But that’s a conversation for another day. 
Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905" target="_blank">here</a>.
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Our new two-speed economy – how does it look? CBA's Gareth Aird

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<img src="https://counter.theconversation.edu.au/content/69117/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The federal deficit will be worse in 2017-18 than predicted in the May budget, despite some easing in the delays imposed by the Senate, Deloitte Access Economics’ budget monitor predicts.
It also says the short-term business implications of a Trump presidency are likely to be smaller and slower than the headlines have suggested but in the longer term there may well be net negatives for the global and Australian economies.
The Deloitte assessment comes as the government starts the final parliamentary fortnight of the year, reasonably confident that it will get its industrial relations bills, which were the triggers for the double dissolution, passed.
In a gloomy outlook for the government’s core challenge of budget repair, Deloitte says: “There are challenges seen on almost every front: under-performance on wages and jobs is forecast to continue, we see shortfalls creeping back in on company tax, super may also fall shy, and GST may do the same.”
On current policy settings, Deloitte forecasts a deficit of A$29.9 billion in 2017-18, which is A$3.8 billion worse than budgeted.
“That says something simple: no, the tide isn’t turning,” Deloitte says.
It estimates a $40.5 billion deficit in 2016-17, $3.4 billion worse than budgeted, and a total blow out of $24 billion in the deficit over the forward estimates. 
The government will release its budget update on December 19.
Deloitte applies a reality check to the benefits of the boost in coal prices, which has seen contract prices going to $US200 a tonne and spot prices to more than $US300.
Coal “is dragging Australia out of the income recession we’ve juggled since late 2011. But King Coal also comes with some king-sized caveats.
"First, as many coal companies have been making losses, a switch to earning profits has a slower-than-usual impact on tax payments. Second, many of the factors that sent coal stratospheric are temporary, and most other commodity prices are more in line with budget assumptions.”
So a spike in national income would then ease back, according to the forecast.
It says both wages and jobs are likely to undershoot official forecasts. The tax take from individuals is predicted to fall short of the budget forecasts by A$1.3 billion in 2016-17 and by A$2 billion in 2017-18. In a break with recent trends, a minor shortfall in indirect tax of A$500 million is also forecast in 2017-18.
While the government has made some progress with measures in the Senate “the overall story on spending remains one of the continuing cost of failing to get a backlog of measures through parliament, topped up by a soupcon of new measures”.
Commenting on the Deloitte report, Treasurer Scott Morrison said the government would be adopting a cautious approach to commodity price assumptions in the budget update “and agrees with Deloitte that commodity price impacts are being offset by wages and inflation outcomes”.
“Deloitte also correctly identifies the need for more important savings measures to be passed by the parliament, that are opposed by Labor. This reinforces the position adopted by rating agencies who continue to watch our parliament to see whether they will support the government’s approved pathway to restore the budget to balance,” Morrison said.
Deloitte says that while the election of Trump was bigger news than Brexit, its shorter-term implications are likely to be less than the speculation.
“The US political system has remarkably strong checks and balances, and those checks and balances have increasingly solidified into gridlock over a number of years”, so presidents are rather less powerful than popular opinion believed.
On the other hand, there are Republican majorities in both houses of Congress, and presidential power is at its strongest on foreign policy – suggesting policy change is now more likely in some areas.
“Examples relevant to Australia include trade and climate change policy, and perhaps foreign policy more generally.
"On balance, we would recommend concentrating on the longer-term implications. In brief, we’d say that overall policy changes may well be net negatives for the global and Australian economies – especially trade- related developments and the increased potential geopolitical uncertainties. However, a number of those negatives will be years in the making.”
In Peru for APEC, Prime Minister Malcolm Turnbull continued to extol the virtues of the Trans-Pacific Partnership (TPP), despite it being apparently dead under a Trump administration.
He said Trump had “never said that he’s against free trade. He has criticised a number of agreements on the basis that they’re not good enough deals.
"It may well be that over time the TPP is re-embraced by the United States, by the Congress or indeed by the president, perhaps in the same form it is today, perhaps in a different form.
"The important thing is to maintain the commitment to the arrangements, the free trade, the open markets that are delivering jobs in Australia,” Turnbull said.
Observers are taking the fact the government is preparing to bring on the bills to tighten union governance and to re-establish the Australian Building and Construction Commission in the Senate this fortnight as a sign that it thinks it can get them through. Previously Turnbull has said they would be brought forward “when we believe there is a majority that will support it and on terms that we will accept”.
Asked about this at the weekend Turnbull said that with the Senate “it’s a long game and we work away, we respect every single senator”. On Sunday Employment Minister Michaelia Cash was engaged in negotiations over the legislation.
Michelle Grattan is professorial fellow, University of Canberra and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/michelle-grattan-20316" target="_blank">here</a>.
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