Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

Joel Robinson

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

&nbsp;

Developer GURNER™ Group has revealed $1.65 billion in residential sales nationally across the 12 months to December 2025, driven largely by the continued momentum of its Docklands wellness-focused precinct, Elysium Fields.

The sales result was generated across seven projects in Victoria and New South Wales, headlined by Elysium Fields, GURNER™’s $2.75 billion mixed-use precinct planned for Harbour Esplanade in Docklands.

The project has recorded more than $500 million in sales across the first three towers, equating to around 580 apartments sold.

The first tower, Helios, has now sold out of its 240 private residences, with GURNER™ preparing to release a premium penthouse collection comprising 15 three-bedroom penthouses in coming weeks.

[smartcode_project:default project_id=144441 project_image_fid=370975]

Elysium Fields is being developed on the long-held 20,000 sqm Docklands site at 208-226 Harbour Esplanade, which had remained undeveloped for more than two decades prior to GURNER™ taking over the project around four years ago.

Construction has now commenced across four towers ranging between 18 and 30 storeys, with Hamilton Marino and Maxcon appointed as builders.

Once complete, the precinct is expected to comprise around 1,100 residences, alongside retail, hospitality and public realm uses integrated throughout the site.

[smartcode_project:default project_id=144441 project_image_fid=370981]

Designed by Fraser &amp; Partners in collaboration with GURNER™ Design House, the project has been positioned around the developer’s broader focus on wellness-led residential living.

“We don’t sell apartments. We create a true luxury lifestyle that simply doesn’t exist elsewhere in the market today,” Founder and Executive Chairman Tim Gurner said.

“To deliver that requires an extraordinary level of detail, coordination and discipline across multiple verticals, from design and hospitality through to wellness and service.”

“We’ve always believed that living extends far beyond the physical residence. It’s about how you feel the moment you arrive, how you live day-to-day, and the ecosystem that supports that.” 
[smartcode_project:default project_id=144441 project_image_fid=370977]

The project’s design places a heavy focus on landscaping, wellness amenities and biophilic design principles.

Plans include around 3,700 sqm of landscaped gardens and open space throughout the precinct, alongside a retail and dining offering spanning approximately 5,000 sqm.

The broader public realm strategy centres around what GURNER™ describes as the “Path of Life”, an urban forest and landscaped pedestrian environment intended to connect the various buildings and wellness spaces across the precinct.

The apartments themselves will incorporate a range of wellness-focused inclusions, including purified air and water systems, circadian lighting, antimicrobial surfaces, and optional in-home wellness upgrades.

[smartcode_project:default project_id=144441 project_image_fid=370980]

Gurner said the company’s experience through its Saint Haven wellness clubs had directly informed the residential offering now being incorporated into Elysium Fields.

“We’re seeing a clear global shift toward longevity, performance and proactive health,” Gurner said.

“Our role is to deliver that in a way that feels seamless, highly private and beautifully resolved within the environments we create.”

A large component of the wellness offering is planned through the resident amenity and health facilities proposed within the precinct.

That includes plans for bathing and recovery facilities spread throughout the towers, incorporating mineral pools, saunas, steam rooms, flotation therapy, red light therapy and wellness lounges.

The developer is also seeking approvals for what it describes as a “reverse ageing medical clinic” within the precinct.

[smartcode_project:default project_id=144441 project_image_fid=370978]

According to project information released by the group, the proposed facility would include cryotherapy, IV infusion therapy, infrared and dry saunas, PEMF beds, MRIs, DEXA scans, brain scans and blood analysis services.

Within the first tower, Helios, residents will also have access to a dedicated amenity offering known as the Sky Private Club.

The upper 15 levels of the building will include private lounges, dining spaces, rooftop amenities and optional private wellness studios integrated within residences.

The Helios tower itself comprises 260 apartments ranging between 60 sqm and 300 sqm, including a collection of penthouses.

That includes a planned two-storey penthouse spanning around 600 sqm with uninterrupted bay views.

The Elysium Fields precinct is being delivered in partnership with Digital Harbour Holdings, a consortium that includes the Liberman family, which controls the development rights across the Docklands site.

[smartcode_project:default project_id=144441 project_image_fid=370979]

The sales result comes as GURNER™ continues expanding its national development pipeline beyond Victoria.

“We have a strong pipeline across Australia and are now focused on scaling into key markets including New South Wales and Queensland, while continuing to build on our Melbourne base,” Gurner said.

“We currently have more than $3 billion in the market, growing to over $5 billion by October, and expect to materially outperform last year in the 2026 calendar year.”

The result also reflects the continued strength of the upper-end apartment market in Melbourne, particularly for owner-occupier-focused product with large-scale amenity and lifestyle offerings.

[smartcode_project_cta:default project_id=144441]

Record result anchored by the Group’s “utopian” Elysium Fields precinct – defying market headwinds in Docklands.

Elysium Fields drive Gurner to $1.65 billion in apartment sales over 2025

National Australia Bank (NAB) will fund <a href="https://www.apartments.com.au/new-apartments/palmera-residences-gold-coast-18-garfield-terrace-surfers-paradise-qld-4217">Palmera</a>, a $1 billion, 52-level luxury residential tower being developed by Central Equity in one of the Gold Coast’s most tightly held coastal locations at Northcliffe.

The project, launched recently by <a href="https://www.apartments.com.au/developers/central-equity">Central Equity</a>, one of Victoria’s largest private residential developers, comes at a time when construction funding for large residential developments has become increasingly competitive as lenders tighten exposure to the sector.

Multiplex has been appointed the builder, and construction is now underway.

[smartcode_project:default project_id=108274 project_image_fid=365784]

Since its first project, Central Equity has delivered more than 85 residential developments with a combined end value exceeding $8 billion.

Palmera reflects Central Equity’s growing focus on the Gold Coast luxury apartment market and continues a relationship between Central Equity and NAB that dates back to the late 1980s, when the bank funded one of Melbourne’s earliest inner-city residential towers at a time when high-rise apartment living in the CBD was largely unproven.

“NAB’s funding of Central Equity’s $36 million CBD development in the late 1980’s to the financing of the billion-dollar tower today highlights the long-term relationship between the two organisations in delivering major residential projects” said Central Equity Founder and Chairman Eddie Kutner.

He said NAB’s early support was instrumental in helping establish the company’s development model.

“When we commenced our first residential tower in the late 1980s the concept of funding off-the-plan apartments was still largely untested in Australia,” Kutner said.

“NAB recognised the opportunity early and supported the project when others were uncertain. That relationship has now continued for more than 37 years across many developments.”

[smartcode_project:default project_id=108274 project_image_fid=365771]

Central Equity was established in 1987 when Melbourne’s CBD and Southbank precinct were still dominated by warehouses and commercial buildings. Fewer than 100 residents lived in Southbank at the time, and large-scale residential development in the inner city was not widely considered.

Recognising changing demographics and lifestyle preferences, the company began developing high-rise residential projects designed to bring permanent residents into the city centre.

Central Equity has provided accommodation for approximately 40,000 residents across Melbourne’s CBD and Southbank, while also incorporating supporting infrastructure including essential lifestyle facilities like retail spaces, childcare facilities and neighbourhood activity centres.

Central Equity has spent many years assembling the Palmera development site on the corner of Garfield Terrace and Frederick Street in Northcliffe, creating a supersite of around 3,300 sqm.

The developer said the Palmera apartment tower reflects its long-term view of the Gold Coast as a growing and increasingly diversified economy.

[smartcode_project:default project_id=108274 project_image_fid=365768]

Supported by infrastructure including the light rail network, major road upgrades expanded education, hospital and medical facilities and continued expansion at the Gold Coast Airport with more international and domestic flights.

Positioned in the tightly held Northcliffe precinct, the 52-level tower will deliver 347 apartments, targeting buyers seeking a high-end coastal lifestyle, from downsizers to interstate investors.

Designed by Marchese Partners with interiors by DBI, Palmera has been conceived as a next-generation residential offering, featuring a collection of oversized apartments, with premium three-bedroom residences offering sweeping northern views stretching from Surfers Paradise through to Burleigh Heads.

[smartcode_project_cta:default project_id=108274]

NAB funds $1 billion Surfers Paradise apartment development, Palmera

Two years after completing one of the newest developments in North Sydney, developer <a href="https://www.apartments.com.au/developers/aqualand-australia">Aqualand</a> is turning its attention to the rapidly evolving St Leonards apartment market.

The developer, which completed AURA by Aqualand on North Sydney's Walker Street, has lodged plans for a 5,918 sqm site at <a href="https://www.apartments.com.au/new-apartments/33-37-herbert-street-st-leonards-nsw-2065">33-37 Herbert Street, St Leonards,</a> seeking approval for a pair of residential towers rising above a shared podium opposite Royal North Shore Hospital.

The proposal forms part of the broader transformation underway across the St Leonards-Crows Nest precinct, where former industrial and commercial sites are increasingly being redeveloped into high-density mixed-use projects tied to major transport infrastructure.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="2cc428cf-fe70-4cac-9cd5-264ad53af62c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.56%E2%80%AFAM.png?VersionId=otKSnHtbjAvAddOnovyXQMgcAwE6DMe1" />

According to the planning documents, the site sits “within the St Leonards–Crows Nest Strategic Centre, identified by the NSW Government as a key area for accommodating future jobs and housing across Sydney.”

The proposal has been designed by fjcstudio, formerly FJMT Studio, and is being progressed through the State Significant Development pathway due to its scale and affordable housing provision.

The scheme would comprise 413 apartments, including 46 affordable housing units, alongside retail and commercial uses fronting Herbert Street. The project would also include communal open space, landscaping, a swimming pool, gymnasium, children’s play areas and podium-level resident amenities.

Planning documents show the development would consist of a part-13, part-39 storey tower form positioned above a four-storey podium.

“The development comprises a unified podium that activates the street interface, and two setback towers to accommodate new housing supply while maintaining an appropriate human scale at ground level,” fjcstudio noted in its Design Report.

The northern and southern towers have been shaped to respond to the surrounding skyline while also limiting overshadowing impacts to nearby public open space, particularly Talus Reserve.

The design report said the differing tower heights were intended to “contribute to a varied skyline while responding to the surrounding built form context and solar access considerations.”

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="36da62dc-ff9e-41f2-a7e3-7be38373751c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.45%E2%80%AFAM_0.png?VersionId=Mo6Rp2r.XRLTzIfg_PEEpw8NepDH8UBs" />

The site sits directly opposite Royal North Shore Hospital and within walking distance of both St Leonards Station and the new Crows Nest Metro station.

While the site itself sits just outside the formal Crows Nest Transport Oriented Development boundary, the planning documents repeatedly reference its alignment with the broader TOD objectives reshaping the Lower North Shore.

“The site is located adjacent to St Leonards Station and in close proximity to Crows Nest Metro which is within the Crows Nest Transit Orientated Development Accelerated Precinct which has been identified by the NSW Government to support housing delivery,” the Design Verification Statement noted.

According to fjcstudio, the project has been designed to respond to the broader transition occurring across St Leonards, where increasing residential density is being concentrated around transport infrastructure and employment hubs.

“The broader precinct is undergoing significant change, with a mix of existing mid-rise buildings and newer high-density developments,” the report stated.

“Recent and approved projects indicate a consistent shift toward taller built form, typically organised as tower-and-podium typologies with more active ground levels.”

The proposal includes close to 6,000 sqm of retail and commercial space across the ground floor and podium levels, designed to create a more activated street edge along Herbert Street.

Aqualand’s plans would also introduce a landscaped podium shared between the two towers, with communal open space in the form of a podium rooftop designed to support resident interaction and improve urban greening outcomes. The scheme would also introduce pocket parks at the northern and southern ends of the site, including a landscaped area at the corner of Herbert and Ella streets designed to improve pedestrian amenity and soften the streetscape.

&nbsp;

The proposal is being progressed through the NSW Government’s Housing Delivery Authority pathway, which was introduced to accelerate housing supply across the state. The application was declared State Significant Development in April 2025 following an expression of interest process.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="faf6d97d-2671-454f-b85a-fe1c6a7be608" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.49%E2%80%AFAM.png?VersionId=diVd28OBVr5.YV.7prrOz.uAanwwwm7a" />

St Leonards has been particularly active with new developments in recent weeks. Developer SP Setia’s <a href="https://www.apartments.com.au/news/nsw/first-look-sp-setia-targets-st-leonards-skyline-with-40-storey-tod-tower">plans for a new 42-storey tower</a> recently went on exhibition through the same pathway, while <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">Stockland’s 52-storey tower proposal</a> was also recently unveiled.

Aside from the St Leonards project, which is expected to take around nine months to move through the approvals process ahead of a potential 2027 launch, Aqualand is also preparing to launch Boronia, a new apartment project in Roseville comprising around 111 apartments on Larkin Street.

The developer also has approvals in place for the next stage of the Barangaroo precinct, which will feature new residential, retail, hospitality and community uses, alongside a new metro entry across the five-hectare site.

More than 50 new retail destinations are planned for Central Barangaroo, alongside a 270-metre-long boulevard connecting Hickson Park to Nawi Cove. Together with Harbour Park, more than 50 per cent of the precinct will comprise public open space and parkland.

First look: Aqualand joins St Leonards apartment party

Economy

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<div>
The Reserve Bank Governor Philip Lowe has indicated that the current level of interest rates is low enough to support the economy.
He hasn’t ruled out further rate cuts – especially if the jobless rate were to rise. But Governor Lowe has indicated that policy is appropriate for now.
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<div>
The Governor is well aware that low rates are affecting “confidence of some people”. He also recognises that low rates could encourage further borrowing to buy homes and that this could to “problems down the track”. 
So for now – with the jobless rate coming down and inflation gradually lifting – the Reserve Bank is happy to remain on the interest rate sidelines.
Despite bushfires, drought and the threat of coronavirus, the Reserve Bank is tipping economic growth near 2.75 per cent this year – near the economy’s speed limit.
The bushfires may cut economic growth by 0.2 percentage points across December quarter 2019 and March quarter 2020. 
<h1>Global economy</h1>
The Governor is more upbeat on the global economy: “These (US-China trade agreement and Brexit) are encouraging developments and provide a reasonable basis to expect that this year will be better than last year.”
Governor Lowe also reflected on one of the themes that CommSec has been focussing on over the past year: “we find ourselves in a world of low unemployment, low inflation and low interest rates. I expect that we are going to remain here for quite some time given the structural factors at work, although it does remain possible that a re-acceleration of growth in economies with little spare capacity could see inflation re-emerge.”
<a href="https://www.propertyobserver.com.au/images/2020/2/5/global%20economy%20.jpg" target="_blank">Click here</a> to enlarge:
<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/2020/2/5/global%20economy%20.jpg" alt="">
“Some investors are also taking on more risk as they search for higher returns in a low interest rate world. Both higher asset prices and a willingness to take more risk can be good for the global economy, especially if they lead to more investment, not just more borrowing. 
"We do, though, need to remember that it is possible to have too much of a good thing. So this is also an issue that international bodies, including the Financial Stability Board, are keeping a close eye on.”
<h1>Local economy</h1>
Our central forecast is for the Australian economy to expand by 2¾ per cent over 2020 and 3 per cent the following year. These growth rates are a little above our current estimate of medium-term growth in Australia, so some inroad into spare capacity should be made.”
“The expected pick-up in world growth should help us, the resources sector is in expansion mode again and we are expecting consumer spending to pick up. The outlook is also being supported by ongoing high levels of investment in infrastructure and the likelihood that the downswing in residential construction will come to an end later this year. Further increases in resource exports and continuing solid growth in public demand will also help.”
<h1>Specific topics</h1>
Governor Lowe focussed on three issues:
Ø  the ongoing adjustment in household balance sheets
Ø  the bushfires, the drought and the coronavirus outbreak
Ø  the importance of continuing to invest in our future.
<h1>Household balance sheets</h1>
The Governor said “we expect consumption growth to strengthen as households become more comfortable with their balance sheet positions. “Higher home prices and lower unemployment will assist in lifting spending growth.”
·         “So it is reasonable to expect that things improve from here, although it is hard to be precise about how much longer this period of balance sheet adjustment will continue.”
<h1>Bushfires &amp; coronavirus</h1>
On the bushfires, the Governor said “In assessing the impact of this on the Australian economy as a whole we have taken into account that there will be a material rebuilding effort and that government grants and insurance payments will assist many people. On this basis, our assessment is that GDP growth for 2020 as a whole will be largely unaffected. 
"There is, however, likely to be a noticeable effect across the December quarter last year and the current quarter. While it is still difficult to be precise, we estimate that the effects of the bushfires will reduce GDP growth by around 0.2 percentage points across the two quarters.”
On the drought, Lowe said: “A further decline of around 10 per cent in farm output is expected in 2020, representing a drag on GDP growth of around a quarter of a percentage point.”
On the coronavirus Governor Lowe said: “It is too early to tell what the overall impact will be, but the SARS outbreak in 2003 may provide a guide. On that occasion, there was a sharp slowing in output growth in China for a few months, before a sharp bounce-back as the outbreak was controlled and economic stimulus measures were introduced.”
<h1>Investment</h1>
The Governor again stressed that Australian businesses and governments need to invest.
“As I have said on other occasions, low interest rates should make it easier for both the public and business sectors to contemplate long-term investments, given that future returns don't need to be discounted as much. They also mean that financing costs are lower. With interest rates at record lows and likely to remain low for quite some time there are plenty of opportunities here.”
<h1>Monetary Policy </h1>
The Reserve Bank Governor said that “Over the next couple of years we expect further progress to be made towards full employment and the inflation target, although that progress is likely to remain quite slow.
Governor Lowe went on further saying that “The gradual nature of this progress reflects some significant structural shifts in the global economy related to technology and globalisation and, as I discussed earlier, a period of adjustment in household finances in Australia.” 
Lowe added: “Monetary policy has already responded to this and is providing considerable support to the Australian economy.”
<a href="https://www.propertyobserver.com.au/images/2020/2/5/gdp%20growth.jpg" target="_blank">Click here</a> to enlarge: 
<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/2020/2/5/gdp%20growth.jpg" alt="">
So monetary policy has acted. But what about further reductions?
Governor Lowe noted: “Given the outlook I have outlined today, the Board has, however, continued to discuss the merits of further monetary stimulus in an effort to speed the pace of progress and to make it more assured. 
"On balance, though, the Board has decided to hold the cash rate steady, recognising the significant monetary stimulus already in place and the long and variable lags associated with monetary policy.”
“This decision also reflects a judgement about the benefits from a further reduction in interest rates against some of the costs and risks associated with very low interest rates.”
“It certainly remains the case that a further reduction in interest rates would help with the balance sheet adjustment by households with existing debt, which should help bring forward the day that consumption strengthens. It would also have a further effect on the exchange rate, which would boost demand for our exports and therefore support jobs growth.”
“On the other side of the equation though, there are risks in having interest rates at very low levels. Internationally, there are increased concerns about the effect of very low interest rates on resource allocation and their effect on the confidence of some people. 
"Lower interest rates could also encourage more borrowing by households eager to buy residential property at a time when there is already a strong upswing in housing prices in place. If that occurs, this could increase the risk of problems down the track. So there is a balance to be struck here.”
“The Board recognises that the nature of this balance can change over time and that it depends very much upon the state of the economy. So it is continually looking at both sides of the equation. 
"If the unemployment rate were to be trending in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would change. In those circumstances, the Board would see a stronger case for further monetary easing. We will continue to monitor developments carefully, including in the labour market, as we seek to strike the right balance in the interests of the community as a whole.”
<h1>What are the implications for interest rates and investors?</h1>
Interest rates are set to remain low. But further rate cuts are ruled out for now. As a result investors will continue to favour investment in shares and property, rather than cash.
Watch the jobless rate. If it starts rising again, then the Reserve Bank may act on rates. But for now the jobless rate is falling, forward indicators are positive and housing demand is rising.
Consumer spending remains one of the big uncertainties for 2020 together with the coronavirus impact on the global economy.
<a href="https://www.propertyobserver.com.au/images/2020/2/5/uneployment%20.png" target="_blank">Click here</a> to enlarge: 
<img src="https://www.urban.com.au/images/2020/2/5/uneployment%20.png" alt="">
 
<a href="https://www.propertyobserver.com.au/images/2020/2/5/inflation%20.jpg" target="_blank">Click here</a> to enlarge:  
<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/2020/2/5/inflation%20.jpg" alt="">
CRAIG JAMES is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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The Reserve Bank Governor paints a positive picture: Craig James

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RBA Governer Philip Lowe's discusses the year ahead

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EXPERT OBSERVER
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The Australian bushfire season that began in September has been horrific with more than 7 million hectares of bush destroyed, more than 25 deaths, significant loss of livestock, estimates of more than a billion wildlife animals killed and more than 1800 homes destroyed. More than 200 fires are still burning. Following the intensification of the bushfires over the Christmas/New Year period attention has now turned to the impact on the economy. This note looks at the key impacts. 
Physical disasters invariably cause a brief disruption to economic activity as measured by GDP followed by a boost as wealth destroyed by the disaster is rebuilt. In this sense measured across a year or so they are often seen as positive for economic growth, albeit this seems perverse particularly for those directly impacted.
The damage to property and wealth flowing from the bushfires will likely run into many billions. For example, the Victorian Black Saturday bushfires are estimated to have cost $4.4bn, whereas the current fires have covered an area 15 times bigger. So there will be a very big rebuilding boost to economic activity to come once the fires are brought under control. But the fires have been very widespread, have been going on for several months now and the crisis is continuing, so there will be a significant short-term negative impact and it likely will involve more than a short-term disruption to economic activity. 
- Activity related to farming, manufacturing, transport, tourism and business generally in the affected areas will be disrupted – this will involve around 2-3% of the population and will be concentrated around the March quarter. It will also be partly offset as affected people have to undertake spending that they otherwise wouldn’t have had to.
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- A bigger impact on economic activity is likely to come via a hit to consumer spending as the constant news of the fires and the smoke haze in several capital cities weighs on confidence. Australians were already very hesitant about the economic outlook after the slowdown in growth seen last year and continuing weak wages growth and high underemployment. A Roy Morgan survey released late last year found that 40% of Australians thought that 2020 will be worse than 2019, which is the worse reading since the early 1990s recession. At the same time a record-low 12% thought it would be better resulting in a net negative reading of 28% which is the worst in the survey’s 40-year history.
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- This may exaggerate how bad things really are. The economy is still in far better shape than it was at the time of the early 1990s recession (I was there, I remember!). But a combination of more negative news flow today due to the rise of social media, more divisive politics and expectations rising faster than reality may be altering perceptions of the economy in a negative way and exaggerating the gloom. Nevertheless, a range of other surveys also show that consumers are uncertain and depressed, and this looks to have intensified since Christmas. The constant terrible news since October about the bushfires along with the smoke in cities is likely weighing further on the national psyche adding to weakness in consumer spending as Australians feel less motivated to spend when their fellow Australians are suffering. The hit to household spending power from higher prices for food and a likely rise in insurance premiums flowing from the fires will only accentuate this. 
- Inbound tourism is also likely to be impacted by the heavy coverage of the bushfires globally – with ridiculous maps showing much of Australia on fire (including where I am right now) – likely to adversely affect perceptions of Australia. This may be short lived (just as the positive boost from the 2000 Olympics was) but it could still last a year or so.
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Taken together we expect a detraction from GDP due to the bushfires of around 0.4% starting in the December quarter but mainly impacting the March quarter before a rebuilding boost kicks in from the June quarter. Given the uncertainty, the range around this negative impact is -0.25% up to a worse case of - 1% of GDP should the fires continue on a widespread basis through the rest of summer. The rebuilding boost should reverse much of this drag later in the year, but there is considerable uncertainty around this as the impact on tourism and consumer spending may linger longer. 
A big proximate contributor to the severity of the bushfires is the severe drought gripping much of Australia. This has already driven a decline in agricultural production, which has been directly detracting around 0.2 percentage points from GDP growth for the last two years. Unfortunately, the Southern Oscillation Index is still in El Nino territory pointing to ongoing relatively dry conditions in eastern and top-end Australia. 
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More policy stimulus 
With the bushfires likely to contribute to a flow of weak economic data for the next several months, questioning the RBA’s “gentle turning point” in the economy and resulting in a movement away from the achievement of the RBA’s full employment and inflation goals, the fires have only added to the pressure for more policy stimulus. We remain of the view that the RBA will cut the cash rate to 0.5% in February (with the market probability now up to 53.4% from a low of 36% before Christmas) and to 0.25% probably in March. The bushfires will push up food prices and insurance premiums but the RBA’s focus on underlying inflation will mean that it should look through this. In fact, increases in such prices will act as a tax on consumer spending power and are negative for spending and so could depress underlying inflation. 
The pressure for further fiscal stimulus has also intensified. The Federal Government has already committed an additional $2bn for bushfire recovery to be spent this year and next (which is relatively small at 0.05% of GDP per year) and the NSW Government has committed another $1bn. However, the total hit to government budgets from the bushfires is likely to be much greater than this given assistance under existing disaster programs, extra expenses associated with fighting the fires and the impact of slower growth in the short term on revenue flows. 
More broadly given the hit to confidence a circuit breaker is arguably needed to help boost economic growth. Monetary policy alone is unlikely to be enough. So there is a need for a broader fiscal stimulus – maybe in the form of a bring forward of the personal tax cuts, an increase in Newstart and broad based investment allowances. To have an impact it needs to be at least 0.5% of GDP (or around $10bn). 
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Rightly in the face of the pain caused by the bushfires the Government has relaxed the focus on achieving a budget surplus and it is now questionable as to whether it will be achieved this year and next. That is not a major problem in the relative scheme of things given the relatively good state of Australia’s public finances. 
Some longer-term challenges 
The bushfires pose a number of longer-term challenges. 
First, increased pressure to adopt a tougher stance in reducing carbon emissions. While Australia has always had droughts and bushfires we have been warned for more than a decade now that the world and Australia is getting warmer, that increasing global greenhouse gas emissions are likely contributing to this and that in the absence of actions to reduce emissions the world will get significantly warmer with the outcome being rising sea levels and more extreme weather events – including storms, floods and droughts – with more severe bushfires an outcome of the latter. 
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Second, the damage inflicted by the extreme bushfires highlights the need for investors to be aware of industries and businesses that are vulnerable to climate change risk – whether it comes from the physical impact from climate change or via measures to reduce emissions. 
Thirdly, the severity of the bushfires and the risk that this is the new normal will necessitate better strategies for reducing the risk to property posed by future bushfires. 
Finally, in the absence of policy action the bushfires risk accentuating the decline of some regional communities particularly where key industries have been destroyed by the fires – with some taking their insurance and rebuilding elsewhere. This will only further centralise Australia in its big cities adding to all the costs that entails – notably congestion and expensive housing. 
What does it mean for investors? 
The likelihood of more RBA monetary easing and continuing weak economic growth in the short term will likely keep Australian bond yields down relative to global bond yields, possibly pushing them lower. 
This will also keep the Australian dollar relatively soft. 
So far the Australian share market appears to be looking through the short-term hit to economic growth focusing more on the rebuilding boost, but the negative impact of the bushfires risks seeing it remain a relative underperformer versus global shares. 
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SHANE OLIVER is Head of Investment Strategy and Chief Economist at AMP Capital. 
Main photo credit: Andrea Schaffer
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Bushfires and the Australian economy: Oliver's Insights

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EXPERT OBSERVER
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The minutes of the December monetary policy meeting of the Reserve Bank Board have made it clear that the Board will be reassessing the economic outlook next February. Whilst it seems reasonable at the end of the year to note that a review will occur at the beginning of the next year, this has not been specifically noted in December minutes in previous years.
Further evidence of the importance of this signal is that the minutes note “economic growth and the unemployment rate remain broadly consistent with the forecasts, but members agreed that it will be concerning if there were a deterioration in the outlook”.
These two observations from the minutes strongly point to the unusual importance of the data flow over the next two months.
The Board has already noted that since the November economic forecasts were finalised “The Capex survey ( showed) … non-mining investment in 2019/20 was expected to be weaker than previously envisaged”.
We were not surprised that the Board did not repeat the comment in the November minutes that “a case could be made to ease monetary policy at this meeting”. Although that language strengthens the signal that the Board is open to cutting rates further, it loses its impact if repeated for every meeting.
The Board also resolved their views on the impact of lower rates on confidence. The November minutes noted that “they recognised the negative effects of lower interest rates on savers and confidence and… that a further reduction in interest rates could have a different effect on confidence than in the past”. However, in these minutes, the Board resolved that: “the impact of these effects [negative confidence] was unlikely to outweigh the stimulus to the economy of lower interest rates”.
Concerns about weak wages growth remain central to the Board: “it was noted that the current rate of wages growth was not consistent with inflation being sustainably within the target range… nor was it consistent with consumption growth returning to trend”. It was also observed that private sector wages growth “had levelled out in recent quarters, following its gentle upward trend of the previous couple of years”.
Last month, the RBA complimented its standard stated benefits of lower rates — the exchange rate and household and business cash flow — with the boost to house prices lifting wealth and expenditure on household goods. That theme is repeated, although while higher house prices are a benefit in the near-term, it “could be become a source of concern if borrowing were to run too quickly ahead of income growth”. Note that the emphasis is on the risk of higher debt rather than actual house prices, and given the current trend for borrowers to lift repayments to contain debt levels, it is unlikely that the Board will become concerned with rising house prices for some time yet.
With the unemployment rate being such an important source of attention for the Board, it is notable that “employment intentions among the Bank’s  liaison contacts had generally been moderate”. Westpac expects that the unemployment rate will drift higher to around 5.6% in the June quarter from the current 5.3%.
On the international front, there is an improved outlook with the noting that “some of the downside risks had receded”, although the Board remains quite cautious around the outlook for China.
Conclusion
These minutes strengthen our conviction that the Board would be comfortable easing rates further at the February meeting. The flow of economic data over the next six weeks will be critical to that decision, particularly the labour market; retail sales and confidence.
Given our forecasts, Westpac is comfortable with our current view that the RBA will reduce the cash rate from 0.75% to 0.50% at the February Board meeting. 
BILL EVANS is the Chief Economist at Westpac
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RBA highlight importance of February 2020 meeting: Bill Evans

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EXPERT OBSERVER
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As Christmas fast approaches, it will be great to see some signs of growing consumer confidence and Australians breaking the spending shackles for the festive season. 
Recently there have been some positive signs for the economy and a push by the federal government for banks to relax lending standards for small business. 
With official interest rates below one per cent for the first time in our history, the RBA can take a well-earned summer holiday as the rate cuts it has delivered this year have made an important contribution to boosting consumer confidence. 
Having upbeat consumers is the key to an economic turnaround and the domestic economy is still showing signs of improvement. It is good to see the government talking to the banks about the way they have been applying the responsible lending guidelines to small and medium-sized enterprises. By supporting more lending and our SMEs we should see positive signs of further economic improvement.
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In this environment there is no real need for the RBA to do much more until they get a better view of the economy in the first quarter of next year. 
In the lead up to the summer break, I again urge mortgage holders to regularly review their home loans to ensure they are getting the best possible deal. Mortgage holders should never be complacent about their home loan. With interest rates at record lows, lenders are willing to battle for your business. Contact a mortgage broker to make sure you are getting the best terms and, most importantly, saving money.
John Kolenda is the chief executive of mortgage broking giant Finsure and is the top shareholder in the listed real estate group The Agency.
 
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Upbeat consumers are the key to an economic turnaround: John Kolenda

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EXPERT OBSERVER
On Monday the Australian government will release the Mid-Year Economic and Fiscal Outlook (MYEFO). This will – as required by <a href="https://www.legislation.gov.au/Details/C2012C00230/Html/Text#_Toc317146004" target="_blank">the Charter of Budget Honesty</a> – provide an update on the key assumptions made in this year’s budget, and track the implications of decisions made since the budget for the projected surplus.
There are two things you can count on about MYEFO.
First, the government will have to pare back its forecasts for economic growth, wages growth and employment growth.
Second, no matter what the economic reality is, the forecast for a budget surplus will remain.
The government has made economic management – as measured by the rather dubious criterion of budget balance – the central plank of its electoral strategy. As the Australian National University’s 2019 <a href="https://australianelectionstudy.org/" target="_blank">Australian Election Study</a> revealed, voters preferred the government’s economic policies to Labor’s by a wide margin (47% to 21%, with 17% thinking there was no difference). On the management of government debt, the margin was 44% to 18%.
But the <a href="https://www.rba.gov.au/snapshots/economy-indicators-snapshot/" target="_blank">economy isn’t doing very well</a>. GDP annual growth is 1.7%, not the 2.75% <a href="https://www.budget.gov.au/2019-20/content/overview.htm" target="_blank">forecast in the budget</a>. The unemployment rate is 5.3%, compared to the forecast of 5.0%. Wage growth is 2.2%, not the 2.75% forecast.
<h2>Iron ore supplements</h2>
The forecast budget surplus for the fiscal year to June 2020 will be made to hang together, thanks to a higher-than-forecast iron ore price.
That price – which determines the dollar value of Australia’s biggest export and hence the tax revenue it generates – is not reflected in the GDP figure, which only takes into account volumes.
The iron-ore price is now <a href="https://tradingeconomics.com/commodity/iron-ore" target="_blank">US$92.50 a tonne</a>. The budget assumed the average price would be $US88 for the 2020 budget year, thanks to a reduction in the international supply of iron ore caused by <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2019-02-12/iron-ore-price-explainer-after-mining-dam-collapse/10800698" target="_blank">a tailings dam bursting</a> in January at the Córrego do Feijão mine near the town of Brumadinho in southeastern Brazil.
<iframe src="https://www.youtube.com/embed/sKZUZQytads?wmode=transparent&amp;start=0" frameborder="0" width="440" height="260"></iframe>
The dam’s collapse released a tsunami of sludge that destroyed farms, houses, roads and bridges, and killed 272 people.
Ensuing mine shutdowns reduced iron ore output from operator Vale (the world’s biggest iron ore miner) by about a third. This in turn led to the price of iron ore this year being very high, as the following chart illustrates.
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<a href="https://images.theconversation.com/files/306498/original/file-20191212-85391-1v12glu.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/306498/original/file-20191212-85391-1v12glu.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Iron ore price (US$/MT) <a class="source" href="https://tradingeconomics.com/commodity/iron-ore" target="_blank">tradingeconomics.com</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/" target="_blank">CC BY-NC-SA</a>
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The Australian government sensibly assumed the Brazilian mine would come back online and the ore price would revert to $US55 per tonne by March 2020.
But just think about the 2020-21 fiscal year. The <a href="https://www.budget.gov.au/2019-20/content/bp1/download/bp1_bs7.pdf" target="_blank">government’s own sensitivity analysis</a> shows for the full 2020-21 budget year a difference in the iron ore price of US$10 a tonne translates to a A$3.7 billion difference in the budget bottom line.
That has helped this year, but it also shows how dependent the budget’s relatively small A$7.1 billion “underlying cash balance” is on a commodity price that’s out of our control.
Yet, given the political non-negotiability of the surplus, we can expect assumptions that stretch credulity to maintain a surplus forecast.
<h2>Some action?</h2>
This is all against a backdrop of calls for fiscal stimulus from the governor of the Reserve Bank of Australia, the Business Council, every mainstream economist and <a href="https://www.afr.com/policy/economy/ceos-call-for-fiscal-stimulus-20191209-p53i7y" target="_blank">recently Australia’s top chief executives</a>.
But any stimulus meaningful enough to boost the ailing economy would blow the budget surplus. And the assumptions have already been stretched to breaking point, so there’s very little room for the government to manoeuvre.
The government will probably announce some sort of “investment allowance” – where companies get a modest tax break for specific types of investments in the short term. As I <a href="https://www.afr.com/policy/economy/what-we-should-do-about-the-gdp-numbers-20190904-p52nw9" target="_blank">have argued before</a>, this will do something to boost investment and the economy generally, but not nearly as much as a full-scale reduction in the company tax rate to 25% for all businesses.
But the government can’t afford to do a proper tax cut because of its devotion to a wafer-thin surplus.
<h2>The danger of too little action</h2>
In the end, what the government ends up announcing will really be an allocation of responsibilities. It will determine how much of the work of economic recovery it will do itself, and how much it will want to palm off to the Reserve Bank.
The downside of the former is losing the budget surplus.
The downside of the latter is that the Reserve Bank will have no choice but to cut the cash rate to 0.25% in early 2020 and then embark upon a bond-buying program – i.e. “quantitative easing” or “QE”.
 
As even Reserve Bank governor Philip Lowe has himself admitted, more aggressive monetary policy brings with it the (further) risk of asset-price bubbles and financial instability.
Right now the government is putting all its chips on the surplus. Will that turn out to be a good bet? Time will tell.
2020 will reveal much about the future of the Australian economy and whether we manage to escape dramatic problems like a recession.
We live in interesting times – but perhaps more in the “Ancient Chinese curse” kind of way than any of us would like.<img src="https://counter.theconversation.com/content/128705/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-australias-wafer-thin-surplus-rests-on-a-mine-disaster-in-brazil-128705" target="_blank">original article</a>.
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Australia’s wafer-thin surplus rests on a mine disaster in Brazil

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EXPERT OBSERVER
The Australian economy grew by a disappointing 0.4% in the September quarter for annual growth of 1.7%.
Of most concern is that this represents the fifth consecutive quarter where private final demand, which declined by 0.3% in September, either contracted or was flat.
Within private final demand the most surprising undershoot was household consumption, which expanded by only 0.1%. Over the last year household consumption has grown by only 1.2%, compared to a trend pace of around 2.8%.
This soft outcome for households is despite a 2.5% lift in household disposable income in the quarter, driven by a solid lift in labour income growth (1.1%); a 6.8% fall in tax paid and a 2.5% fall in interest paid (all these measures are nominal). Consequently there was a substantial lift in the savings ratio from 2.7% in the June quarter to 4.8%.This is convincing evidence that uncertain households chose to “save” the tax and interest rate cuts, and then some.
The contraction in the dwelling construction cycle continued into the September quarter. New dwelling construction contracted by 2.8% to be down by 11.0% over the year. With businesses facing flat demand it is not surprising that new equipment investment fell by 4.5% in the quarter (-2.2% for the year) with overall business investment down 2.0% for the quarter (-1.7% for the year).
Growth continued to be boosted by public demand (+1.7% for the quarter and 5.2% for the year).
The Federal Government and the Reserve Bank will be disappointed with this result. A lift in annual output growth from 1.6% to 1.7% is hardly a “gentle turning point” when private final demand contracted by 0.3% following a 0.1% contraction in the June quarter.
Despite a solid boost to incomes, the cautious consumer has chosen to lift its savings rate and hold spending effectively flat. The lift in savings is over and above the policy stimulus - suggesting heightened risk aversion.
RBA rate cuts have had some impact with house prices lifting nationally by 2.3% (including 3.5% in Sydney and Melbourne) in the September quarter. This turnaround has clearly failed to boost spending in the quarter although any wealth effect is likely to have substantial lags, probably in the order of 12 months.
That consumer caution, along with an uncertain global outlook, has constrained business investment while the contraction in the residential construction cycle continues to unfold.
It seems likely that the Reserve Bank will need to lower its optimistic growth forecast for 2020 of 2.8% given it is underpinned by a lift in consumer spending growth to 2.4% (compared to the current 1.2%) and a 6.2% lift in business investment.
Westpac has long held the view that the RBA’s 2020 growth forecasts were overly optimistic. Our forecast for growth in 2020 has been 2.4% following a 2.3% increase in 2019.
The main areas of difference with the RBA have been around the outlook for business investment growth (2.8% compared to 6.2% for the RBA) and dwelling construction (-6.0% compared to -2.6% for the RBA).
Our forecasts for consumer spending were largely aligned (2.3% compared to 2.4% for the RBA).
Following the lower than expected growth in the September quarter and the associated evidence that the household sector is gripped in a sustained period of caution and risk aversion (average quarterly growth in consumption of 0.28% since the September quarter 2018) we have lowered our forecast annualised growth pace for consumer spending in the first half of 2020 from 2.3% to 1.6%.
That lowers our forecast for growth in consumer spending for 2020 from 2.3% to 1.8%.
Along with some other more modest downward adjustments to business investment (2.8% to 2.2% and dwelling construction (-6% to -7.1%) we have lowered our GDP growth forecast for 2020 from 2.4% to 2.1%.
As discussed, that compares with the Reserve Bank’s forecast in November of 2.8%. Accordingly we expect that the RBA, while unlikely to follow Westpac’s forecast exactly, will revise down its 2020 growth forecast from 2.8% to 2.5%. A revision in growth from trend to below trend would represent an appropriate opportunity to deliver on the next rate cut from 0.75% to 0.5%.
That growth revision (from trend to below trend) will be released following its Board meeting on February 4 and, together with an associated boost in the forecast unemployment rate (currently flat lining at 5.2% to end 2020) will make the decision to further cut the overnight cash rate to 0.50%, at that February meeting, a reasonable response.
We expect that cut will be eventually followed by a further cut in June to 0.25%, a little after the Commonwealth Budget which will be released on May 12.
Westpac has argued strongly that the Commonwealth government should bring forward the personal income tax cuts which have been legislated to begin from July 2022. Such a policy initiative would boost the consumer spending profile through the second half of 2020 and in 2021.
A key issue here will be whether the Commonwealth government believes that the bring forward can be accommodated while still delivering on the election commitment of fiscal surpluses from 2019/20.
Current Budget forecasts point to surpluses of $7bn (2019/20); $11bn (2020/21); $17.8bn (2021/2022); and $9.2bn (2022/23).
The approach would be to bring forward the $14bn in tax cuts in two suggested stages of $7bn in 2020/2021 and 2021/22. That would allow surpluses in 2020/21 and 2021/22 of $4bn and $3.8bn respectively – tight but nevertheless surpluses.
In that regard the Government’s Mid-Year Economic and Financial Outlook (MYEFO), which is scheduled to print before December 20, will be very important.
As with our expectation that the RBA will be revising down its growth forecasts in February the government may be forced to do the same in the MYEFO. Of most interest will be the impact on the fiscal outlook of a likely downward revision in the forecast for the growth rate in the Wage Price Index (currently 2.75% through 2019/2020 and 3.25% in 2020/2021). Note that the RBA is forecasting 2.3% in 2020 and 2021.
GDP growth is forecast at 2.75% ( 2019/20) and 2.75% (2020/21) compared with Westpac’s forecasts of 2.0% and 2.2% respectively.
On the other hand, the Government has forecast the iron price at USD 55 per tonne by end March 2020 – currently USD 89 per tonne and clearly a significant underestimate. The revised fiscal outlook will be important for gauging whether the government assesses that there will be sufficient fiscal scope to accommodate the bring forward of the personal income tax cuts.
Even with a bring forward of the tax cuts, we assess that the economic environment (particularly around our forecast 5.6% unemployment rate through most of 2020) will be sufficiently threatening for the RBA to see the need for a second rate cut in June 2020 to the “effective lower bound” of 0.25%.
From that point, in an environment where we expect the US Federal Reserve to be cutting rates – putting downward pressure on global rates – the RBA will need to adopt a QE style policy to contain any unwelcome boost to the AUD as well as put further downward pressure on the risk free rate. That policy is likely to take the form of a regular monthly purchase program of $2-3bn comprised of Commonwealth government bonds and probably, selected semi government securities. The program is likely to be open ended, contingent on the economic and inflation outlook.
Evidence from offshore, as set out in the Bank of International Settlements study (CGFS Papers No. 63) point to “overall, the effects have been estimated as positive for both output and inflation, but these assessments are subject to a high degree of uncertainty.”
Channels recognised in the studies refer to reductions in the risk free rate; impacts on bank lending (as reserves of the banks are increased); currency effects; and spill overs to other private sector rates.
Such a modest purchase program could be extended well into 2021 by which time we expect the economic outlook will have shown steady improvement.
BILL EVANS is the Chief Economist for Westpac
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RBA and Government likely to lower forecasts following GDP report: Bill Evans

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EXPERT OBSERVER
Australian Q3 GDP was this week’s key data. It again highlighted the weak state of Australia’s economy and the need for additional policy support.
Ahead of GDP’s release, partial data for public demand pointed to a potential upside surprise to the market’s 0.5% expectation. Instead,  GDP actually surprised to the downside, rising just 0.4%, 1.7%yr. Why? Principally because household consumption grew by only 0.1%, 1.2%yr in Q3 – the weakest result since the GFC. Household consumption therefore declined in per capita terms, both in the quarter and over the year. It is important to note that this is despite the mid-year rate cuts, the Government’s tax cuts, and a 1.1% rise in nominal labour income in Q3 alone. Even with a partial offset from weak non-labour income associated with the drought and spill-overs from the dwelling construction downturn, household disposable income rose 2.5% in the quarter. Witnessed to by the savings rate jumping from 2.7% to 4.8%, households cautiously saved their rate and tax windfalls as well as a significant proportion of recent income gains. The flat October retail sales result highlights this weakness in spending continued into Q4 in the lead-up to November’s ‘Black Friday’ sales.   
The very weak gain for consumption in Q3 was unable to offset declines in business and residential investment. As a result, private demand registered a fifth consecutive quarter of flat or declining activity. Notably the decline in residential construction was not only due to falling new dwelling construction (-11%yr), but also weaker renovation activity (-7.1%yr). The latest dwelling approvals data suggests the trend decline in both components of residential construction will continue into 2020.
The above outcomes are clearly inconsistent with the RBA’s “gentle turning point’ thesis and their hope that rising property prices “should” support stronger consumption and residential construction in time – as expressed in this week’s December RBA meeting statement. Indeed, as per retail sales and GDP, the states that have seen the strongest house price gains, NSW and Vic, have seen some of the weakest consumption outcomes, particularly on a per capita basis. The RBA chose to emphasise “long and variable lags” of the effect of recent policy stimulus, but should economic softness persist as we anticipate, they will need to take further action.
Therefore, come 2020, we expect the RBA will again ease monetary policy, through cash rate cuts in February and June to 0.25%, and by subsequently commencing quantitative easing in the second half. We see this monetary easing as complimentary to the bringing forward of the 2022/23 tax cuts to 2020/21 and 2021/22. This is a policy change we have called for in recent months but which is yet to gain the support of the Government.
Across the Tasman, the RBNZ delivered an announcement on bank capital requirements. The final outcome was broadly in line with expectations. New Zealand's banks will be required to hold substantially more capital over the coming years but importantly have been given seven years to implement changes rather than the originally tabled five and are now allowed up to 2.5% of Tier 1 capital to be in the form of preference shares. Our New Zealand Economics team have provided a bulletin covering the economic impact of the new requirements.
Offshore, markets have been in flux this week. The initial shock came as President Trump showed no urgency towards a phase 1 deal with China, commenting that he would be quite happy to hold off on a deal until after the November 2020 election. However, markets were soon appeased by media coverage of unnamed sources downplaying Trump’s remarks, and instead citing that trade talks were progressing despite “harsh headline rhetoric”.
While the market has calmed down, we remain somewhat more circumspect that all will be well going forward. President Trump’s indifference to a deal together with his signing of legislation supporting protests in Hong Kong last week, the US House of Representatives passing a bill against China’s treatment of the Uyghurs this week, and President Trump’s additional threat to impose tariffs on some French goods in retaliation against the nation’s digital services tax, highlights that geopolitical tensions will remain in 2020. This is in stark contrast to the market’s current view that a phase 1 deal with China will be completed before December 15’s planned tariffs take effect, and that this will (hopefully) herald a wind-down of all trade-related tensions. 
Finally to this week’s international data. China’s official PMI’s were a clear positive. Notably in November, the headline factory survey returned to growth for the first time in seven months, and new orders rose to an expansionary reading. Momentum in the services sector also improved from an already-expansionary October reading. Overall, these results highlight China is making progress digesting the negative shock imposed on them, and that GDP growth will soon stabilise.
US data has, in contrast, been on the soft side this week. The market was most concerned by the unexpected deterioration in the manufacturing ISM. Of particular note in the detail is that new orders signalled a sharper contraction in activity ahead, and that the employment index was consistent with further job shedding. ADP payrolls subsequently came in well below expectations (67k versus a 135k expectation), though this result was offset by an improvement in the forward indicators of the non-manufacturing ISM, including a lift in its employment index.
We believe that US employment growth will slow further in 2020, impacting consumption and resulting in below-trend GDP growth. Amid persistent global uncertainty, these are circumstances that will require the FOMC to ease. We continue to anticipate three cuts, in March, June and September.
ELLIOT CLARKE is a senior economist at Westpac 
SIMON MURRAY is an economist at Westpac
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Australia's economy languishes: Elliot Clarke & Simon Murray

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EXPERT OBSERVER
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Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.8 per cent to a 4-year low of 106.8 points. Sentiment is below both the average of 114.3 points held since 2014 and longer term average of 113.1 points since 1990.
Consumer views on the economic outlook over the next 5 years are the most pessimistic since the weekly survey commenced in August 2008.
The Reserve Bank Deputy Governor delivered a speech: “Employment and Wages”<a href="https://www.rba.gov.au/speeches/2019/sp-dg-2019-11-26"> </a>
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
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<h1>What does it all mean?</h1>
- This would worry the Reserve Bank. Consumer sentiment is at 4-year lows, however it is hard to find catalysts for either the sharp drop in the past week or the weakness over the past months. Interest rates are steady; the sharemarket is edging closer to record highs; there is continuing optimism about a US-China trade deal; and the Aussie dollar has been reasonably steady in a US67-69 cent range.
- While not a factor affecting personal finances or the economy in a broader sense, the bushfires would have been a factor generally affecting consumer mood over the past week. Then there is the on-going drought. The sharp increases in petrol prices in eastern and southern mainland capital cities would also certainly be making people more apprehensive. And consumers always prefer a stronger Aussie dollar to a weaker currency.
- Aussies are at risk of talking themselves into an economic downturn. And when you review the evidence there is no justification for pessimism. Inflation is low, tax cuts are flowing, the budget is balanced, the trade surplus is at record highs and record low interest rates are driving down borrowing costs.
- But most consumers seem to be sending a message that interest rates are low enough and don’t need to go further. The Reserve Bank has seemingly got the message that rate cuts are bad for confidence: at the last meeting the Board “recognised the negative effects of lower interest rates on savers and confidence.”
- All eyes will now be focussed on the Reserve Bank Governor’s speech tonight. Governor Lowe would be best to turn the speech into a ‘pep talk’ and rule out new special initiatives to drive the economy. Most people just want to know that rates will remain low for an extended period.
- Reserve Bank Deputy Governor Guy Debelle expects annual wage growth to persist in the 2s (2.0-2.9 per cent). Encouragingly he says: “I don't think there is much risk in the period ahead that aggregate wages growth will move any lower.”
- But the Reserve Bank is not expecting much of a lift in wages either: “What we know from our liaison program is that the proportion of firms expecting stable wages growth in the year ahead is around 80 per cent and only around 10 per cent anticipate stronger wages growth.”
- The Deputy Governor also said “The Bank is trying to understand what has been driving these macro developments using some newly available micro data sources. This greater understanding should help inform our outlook for the labour market.”
<h1>What do the figures show? </h1>
Consumer Sentiment
- The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.8 per cent to 106.8 points. It was the biggest weekly fall in two months. Sentiment is below both the average of 114.3 points held since 2014 and the longer term average of 113.1 points held since 1990. 
All of the five major components of the index fell last week:
- The estimate of family finances compared with a year ago was down from +10.9 points to +10.8 points; 
- The estimate of family finances over the next year was down from +25.8 points to +20.3 points;
- Economic conditions over the next 12 months was down from -9.4 points to -10.6 points;
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- Economic conditions over the next 5 years was down from +0.8 points to -3.8 points; 
- The measure of whether it was a good time to buy a major household item was down from +21.1 points to +17.1 points. 
- The measure of inflation expectations was steady at 3.8 per cent. 
<h1>What is the importance of the economic data?</h1>
- The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
<h1>What are the implications for interest rates and investors?</h1>
- The Reserve Bank can cut rates again. The question is whether it should cut rates again. The promise of an extended period of record low rates may serve a better purpose.
- The Federal Government is well placed to provide stimulus to the economy. But the measures applied must directly boost business activity and consumer spending rather than just encourage or influence actions.
- The latest consumer confidence data offers no joy for retailers. Retailers must work extra hard to secure the affection of consumers. Good deals at the Black Friday and Cyber Monday sales would help.
- Also downbeat for retailers, this from the Reserve Bank Deputy Governor: “surveys suggest that promotions can be a key source of earnings growth for individuals. On average, a promotion leads to a 5 per cent boost in hourly wages, which is comparable to the wage rise a worker gets when switching firms. Since 2012, there has been a broad-based decline in the proportion of employees that are getting promoted at work or switching jobs. This means that a smaller fraction of the workforce are receiving these wage rises.”
CRAIG JAMES is the Chief Economist at CommSec.
 
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Consumer confidence slides to four-year low: CommSec

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EXPERT OBSERVER
Aussie consumers remain downbeat. In fact, the weekly ANZ-Roy Morgan consumer sentiment index is down by 4.1 per cent between June 9 and November 17 2019 – the period in which interest rates have been lowered three times to a record low 0.75 per cent. Last week, the release of disappointing job and wage reports served to highlight the sense of unease Aussies are currently feeling about the economy. In fact, consumer views on ‘current’ economic conditions are now at the lowest level since April 23 2017.
While ultra-low interest rates are currently working their way through the economy and showing up primarily in rising capital city home prices, although rising unemployment, tepid pay rises and still-elevated household debt continue to restrain consumer spending intentions.
According to Commonwealth Bank (CBA) and Google trends searches data, measured household spending intentions edged higher in October. The modest upturn signals a potential improvement in consumer spending in the lead up to online retail shopping events - Black Friday and Cyber Monday - later this month, ahead of the all-important Christmas trading period.
The CBA gauge also revealed that consumer spending intentions on entertainment and travel are positive, suggesting that households are still keen to deploy their hard-earned coin on ‘pleasure pursuits’. But gyms and car dealerships remain under pressure as consumers’ rein-in non-essential spending on goods and services.
The rebound in home prices continues. The CoreLogic 5-Capital City Daily Home Value Index is up by 1.2 per cent so far in November, led by gains in Sydney (up 1.8 per cent), Melbourne (up 1.2 per cent) and Brisbane/Gold Coast (up 0.5 per cent). The lift in housing demand, supply constraints and record-low borrowing costs are pushing-up home prices – so it’s no surprise that home buying intentions are near record highs in early 2017, according to CBA Group economists.
What do the figures show? Consumer Sentiment
The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.1 per cent to 109.9 points. Sentiment is below both the average of 114.3 points held since 2014 and the longer term average of 113.1 points held since 1990.
Three of the five major components of the index rose last week:
1. The estimate of family finances compared with a year ago was up from +10.6 points to +10.9 points;
2. The estimate of family finances over the next year was up from +25.6 points to +25.8 points;
3. Economic conditions over the next 12 months was down from -7.0 points to -9.4 points;
4. Economic conditions over the next 5 years was down from +6.0 points to +0.8 points;
5. The measure of whether it was a good time to buy a major household item was up from +20.6 points to +21.1 points.
The measure of inflation expectations was down from 4.1 per cent to 3.8 per cent.
The CBA Household Spending Intentions Series (HSI) – October
On home buying intentions: “Home buying intentions rose further in October and are now close to the record highs seen in H1 2017. Current HSI readings are consistent with an ongoing pick up in dwelling prices. And also consistent with a turn in leading indicators of residential construction like building approvals.”
On retail spending intentions: “Retail spending intentions are bouncing around at present but the lift in October means a modest uptrend is in place.”
On travel spending intentions: “Travel spending intentions are turning up, albeit from low levels. The trend in Australian residents holidaying overseas has slowed. The pick-up in the Travel HSI may be an indication that a lower AUD [Aussie dollar] is encouraging domestic holidays instead.”
On health &amp; fitness spending intentions: “Intentions to spend on health &amp; fitness have levelled out. Households are willing to allocate scarce disposable income to driving health &amp; fitness spending with little impact from the vagaries of the economic cycle.”
On education spending intentions: “Education spending intentions are high and rising. Policy makers and economic commentators can all see the need to lift productivity growth.”
On motor vehicle spending intentions: “Motor vehicle purchase intentions remain deep in negative territory. And the tentative signs of a turn up in the past few months have stalled.”
Reserve Bank November 5 Board minutes
Last paragraph – easing bias retained: “The Board concluded that the cash rate should be held steady at this meeting. As part of their deliberations, members also agreed that it was reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target. The Board would continue to monitor developments, including in the labour market, and was prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
A rate cut was considered by the Board: “The Board agreed that a case could be made to ease monetary policy at this meeting…”
Impact on consumer confidence and savers: “While members judged that lower interest rates were supporting the economy through the usual transmission channels (including a lower exchange rate, higher asset prices and higher cash flows for borrowers), they recognised the negative effects of lower interest rates on savers and confidence. They also discussed the possibility that a further reduction in interest rates could have a different effect on confidence than in the past, when interest rates were at higher levels.”
Stimulus is working its way through the economy: “The established housing market was picking up, which would have positive spillovers for the broader economy, although the size of these spillovers was uncertain. Further evidence on spending by households was required before drawing a conclusion on the effects of the tax cuts and low interest rates. Having already delivered a substantial monetary stimulus in recent months, there was a case to wait and assess the effects of this stimulus, especially given the long and variable lags.”
Interest rate pause?: “The most appropriate approach would be to maintain the current stance of monetary policy and to make another full assessment once more evidence of the effects of the earlier monetary easing had become available.”
‘Gentle turning point’ reiterated: “The outlook for the Australian economy was little changed since August. After a soft period in the second half of 2018, GDP growth had picked up a little in the first half of 2019 and it appeared that a gentle turning point had been reached. Looking forward, growth was expected to strengthen gradually to 2¾ per cent over 2020 and around 3 per cent over 2021.”
On the job market: “The unemployment rate had remained steady at around 5¼ per cent and was expected to decline only gradually. Spare capacity was likely to remain in the labour market for some years.”
On inflation: “Inflationary pressures had remained subdued, held down by very low housing-related prices and slow growth in labour costs and administered prices.”
On the global economy: “Global financial markets were signaling a decline in pessimism, which, if sustained could lead to better-than-expected outcomes for the global economy.”
Financial markets pricing of future rate cuts: “Financial market pricing implied that expectations for a further reduction in the cash rate had been scaled back since the previous meeting, with some chance of a 25 basis point reduction around the middle of 2020.”
What are the implications for interest rates and investors?
According to the Reserve Bank Board’s minutes – released today - policymakers considered another rate cut at their meeting in early November. The Board, however, opted to ‘sit pat’, instead cautioning that “they recognised the negative effects of lower interest rates on savers and confidence.” And in light of its diminishing conventional monetary policy ammunition, Board members also emphasised that, “Having already delivered a substantial monetary stimulus in recent months, there was a case to wait and assess the effects of this stimulus, especially given the long and variable lags.”
That said, the Reserve Bank has retained its policy easing bias. Further evidence of a continuing loss of momentum in the job market could be the catalyst for another rate cut. In fact, Board members concede that “spare capacity is likely to remain in the labour market for some years” with little progress expected to be made boosting Aussies pay packets – two essential ingredients for an improvement in consumer spending and a pick-up in inflation.
CommBank Group economists have pencilled in an interest rate cut in February 2020, but view further fiscal initiatives as being more effective in delivering additional support for the economy.
RYAN FELSMAN is a Senior Economist at CommSec
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