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>.

Joel Robinson

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

IN BRIEF

<ul>
	<li>
	Just three double-storey Sky Homes sit at the top of The Waterline, each with its own private marina berth and rooftop terrace.
	</li>
	<li>
	Construction on The Waterline is complete, with the first residents expected to move in from mid-October.
	</li>
	<li>
	Sky Homes range from 282 sqm to 367 sqm and are priced from $3.65 million.
	</li>
</ul>

<hr />
Lewis Land has opened the first completed sky home for inspection at Harbour Shores, giving buyers their first opportunity to step inside one of just three double-storey residences crowning The Waterline.

Each sky home comes with its own private marina berth, rooftop terrace and Broadwater views, combining the scale of a larger home with direct access to the boating lifestyle that underpins the wider <a href="https://www.apartments.com.au/new-apartments/harbour-shores-biggera-waters-564-oxley-drive-biggera-waters-qld-4216">Harbour Shores</a> masterplan.

[smartcode_project:default project_id=113271 project_image_fid=366708]

Lewis Land Head of Development Michael Long said the inclusion of a berth with every Sky Home had become increasingly valuable as marina access across the Gold Coast tightened.

“Marina berths are becoming increasingly difficult to secure across the Gold Coast, so including one with every Sky Home makes this a genuinely rare offering,” Long said.

“The private 70-berth marina will accommodate boats up to 12 metres in length and is positioned just 2.5 kilometres from the Broadwater, placing the open ocean only 15 minutes away.

“Being able to step out of your home onto your boat is a rare luxury, and it’s something residents here can look forward to when it opens later this year.”

[smartcode_project:default project_id=113271 project_image_fid=366709]

The display opening comes as construction completes on The Waterline, with the first residents expected to move in from mid-October.

The three Sky Homes range from 282 sqm to 367 sqm and each feature three bedrooms, three bathrooms, multiple living zones, expansive kitchens with butler's pantries and large balconies taking in the Broadwater outlook.

Each residence also has three secure basement car spaces and additional storage.

“This is the first opportunity the Gold Coast has had to step into Harbour Shores and see, touch and feel what we’re bringing to life here,” Long said.

“There are only three Sky Homes within The Waterline, ranging in size from 282sqm to 367sqm, with each residence featuring three large bedrooms, three bathrooms, multiple living zones, expansive custom-built kitchens with butler’s pantry, and large balconies capturing Broadwater views.”

<img alt="Harbour Shores" data-entity-type="file" data-entity-uuid="bab65e10-4fab-45e1-92d8-fc56e2ab98ff" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-25%20at%202.00.16%E2%80%AFPM.png?VersionId=XT8q76LsPkw3cYTsvN3JfFDaPLud90PN" />

Residents of The Waterline will have access to a private pool, along with Harbour Shores' wider collection of amenity including a lagoon pool, social clubhouse, tennis court, gym, yoga facilities and sauna.

Lewis Land partnered with Studio Collective to furnish the completed display, with the interiors designed to demonstrate how the residences could function as permanent homes rather than simply as show apartments.

Studio Collective Director Melissa Park said the surrounding waterways informed the interiors, but in a more restrained way than a traditional coastal scheme.

“We drew inspiration from the canals and coastal surrounds, but our approach was to interpret that subtly through layered materials and a grounded palette of earthy tones, rather than literal coastal references,” Park said.

“We introduced hero moments of green and teal to reference the surrounding waterways, while mirrored elements help reflect natural light.

“The result is a residence that feels elevated yet comfortable, somewhere buyers can genuinely imagine themselves living, entertaining and unwinding.”

Sky Homes are priced from $3.65 million.

Lewis Land is also offering private marina berths with The Residences, its limited collection of three and four-bedroom villas positioned directly along the Harbour Shores waterfront boardwalk.

Three-bedroom villas are priced from $2.99 million, while four-bedroom residences start from $3.19 million.

Harbour Shores is being marketed by Colliers International.

[smartcode_project_cta:default project_id=113271]

Lewis Land opens sky home display as The Waterline completes at Harbour Shores

St Vincent de Paul Society Housing Australia has filed plans for a major mixed-use housing precinct on the southern edge of the North Sydney CBD, adding another significant proposal to a pocket around North Sydn​ey Station that is quickly becoming one of the LGA's busiest development zones.

The State Significant Development Application covers a 5,990 sqm site at <a href="https://www.apartments.com.au/new-apartments/1-19-mackenzie-street-lavender-bay-nsw-2060">1-19 MacKenzie Street and 211 Blues Point Road in Lavender Bay</a>, immediately south of Nor​th Sydney Station and between the commercial core and the lower-rise Lavender Bay Heritage Conservation Area.

Designed by Wardle, the proposal would deliver a new residential tower comprising 88 build-to-sell apartments and 19 affordable apartments, alongside a separate co-living building with 57 rooms and a building manager's studio.

It would also see the significant restoration and upgrade of St Francis Xavier Catholic Church, the adaptive reuse of the former school building, new parish facilities, retail, a new public square and around 1,000 sqm of publicly accessible open space.

<img alt="Vinnies North Sydney" data-entity-type="file" data-entity-uuid="d5dd7f87-a617-463e-b577-17541e01f0e9" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%209.10.13%E2%80%AFAM.png?VersionId=4R8TsFN3P_LrrXO2HswTOIrx2blil8lh" />

The project is seeking a concurrent rezoning of the site to R4 High Density Residential and an increase in the maximum building height to allow a tower reaching RL120, or up to 20 storeys. The proposal was progressed through the NSW Government's Housing Delivery Authority pathway.

The build-to-sell component will be weighted toward larger apartments, with just six one-bedroom apartments compared with 31 two-beds, 43 three-beds and eight four-bedroom residences.

The 19 affordable apartments will comprise two studios, 15 one-bedroom apartments and two two-bedroom apartments, taking the total apartment component to 107 residences before the 58 co-living rooms are included.

<img alt="Vnnies" data-entity-type="file" data-entity-uuid="7d568ca5-cb90-4e18-96c6-d9795dba0c56" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%209.10.05%E2%80%AFAM.png?VersionId=GY2R5M9VtQh0EKy1vajaea19PSLOPuRD" />

Wardle's design for the Vinnies site has sought to negotiate that emerging high-rise context while retaining the lower-scale character of MacKenzie Street and the adjoining heritage conservation area.

The main building adopts a three-storey podium and tower arrangement, with the podium aligned to the ridgeline and front setback of St Francis Xavier Church.&nbsp;Wardle has designed the podium with colonnades, seating, recessed entries and active ground-floor frontages, with sandstone-toned precast concrete and face brick referencing the materiality of the existing church.

The tower then steps back eight metres to the south and six metres to the north before rising in a sculpted form comprising four interlocking quadrants. Wardle has also introduced rounded forms and chamfered corners to reduce the tower's perceived bulk and improve view sharing with neighbouring development sites.

Resident facilities and outdoor areas are planned at the separation between the podium and tower at Level 3, oriented toward Sydney Harbour and the CBD skyline.

The tower itself will feature a glass reinforced concrete facade, with recessed balconies and deep reveals used both to provide shading and privacy and frame views toward the harbour and city. The lower levels take a different architectural approach, using brick and sandstone-toned finishes intended to establish a stronger relationship with St Francis Xavier Church. The Church itself will be conserved and upgraded for its continued use, while the former school building will be adaptively reused as part of the co-living component.

<img alt="Lavendar Bay" data-entity-type="file" data-entity-uuid="2d4418ad-90aa-4d49-af93-c80b140aea80" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%209.09.47%E2%80%AFAM.png?VersionId=Kv4gzbsACaGvZSRuaqcfGC54jEJRXIDJ" />

&nbsp;

The proposal adds to an increasingly concentrated pipeline of residential development around Blue Street, MacKenzie Street and Lavender Bay.

Just west of the site, Central Element lodged plans earlier this year for one of the most significant residential developments proposed in Lavender Bay in recent years.

Central Element's SJB-designed scheme at 64-66 Lavender Street and 3-7 Middlemiss Street would deliver 163 apartments across two towers rising 23 and 32 storeys, replacing five existing apartment buildings containing 32 homes. The project also forms part of the Housing Delivery Authority pathway.

<a href="https://www.apartments.com.au/news/nsw/first-look-central-element-reveals-lavender-bay-apartment-plans?utm_source=chatgpt.com" rel="noopener" target="_blank">First look: Central Element reveals Lavender Bay apartment plans</a>

Immediately around North Sy​dney Station, another two significant proposals have emerged at 5 and 15 Blue Street.

Zurich Australian Insurance Properties is seeking to adaptively reuse its longstanding commercial building at 5 Blue Street, directly above North Sydney Station, rather than demolishing the structure.

Its SSDA proposes converting the building into a 14-storey mixed-use development with 62 apartments and 86 co-living rooms, together with ground-floor retail and a major refurbishment of Blue Street Plaza. The application is currently at the Response to Submissions stage.

<a href="https://www.apartments.com.au/news/nsw/first-look-zurich-targets-north-sydney-office-conversion-with-148-unit-proposal-above-metro-station">First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station</a>

&nbsp;

First look: Vinnies files for 20-storey Lavender Bay apartment tower as North Sydney housing pocket heats up

When the opportunity arose for South Australian developer Palumbo to return to Kent Town, where it had previously delivered East Park Apartments and the East 
Rundle Apartments, it wasn't one the longstanding developer-builder was going to pass up.

The decision was quickly vindicated, with more than 30 apartments sold within the first month of launching <a href="https://www.apartments.com.au/new-apartments/royal-apartments-kent-town-2-8-north-terrace-kent-town-sa-5067">Royal Apartments</a> to the market.

The 206-apartment development, which will bring significant new supply to Adelaide's tightly held eastern city fringe, also gives <a href="https://www.apartments.com.au/developers/palumbo">Palumbo</a> the opportunity to bring new life to one of Kent Town's most recognisable watering holes.

[smartcode_project:default project_id=6109 project_image_fid=376073]

Royal Apartments incorporates the historic Royal Hotel, a venue Palumbo Managing Director Daniel Palumbo said has a longstanding connection with the local community.

"Everyone in the area has history with the Royal Hotel," Palumbo told Apartments.com.au.

"It was quite an active pub and social gathering place for locals. We want to bring it back to its former glory."

[smartcode_project:default project_id=6109 project_image_fid=376072]

The wider development will comprise two residential towers alongside the restored hotel, sitting on North Terrace opposite the Adelaide Park Lands.

For Palumbo, the project also marks a return to familiar territory.

The developer completed East Park Apartments next door more than a decade ago and jumped at the opportunity to develop in Kent Town again when the Royal Hotel site became available.

"The opportunity emerged, and we moved to secure the site," Palumbo said.

"We were approached by the previous landowner, who said they had extensive commitments in Sydney and weren't in a position to deliver the project.

"We took over the site and within six months recut the design scheme to be more in keeping with the type of development we want to bring to Adelaide.

"Now we're on the market and those changes have really resonated with local buyers."

That has translated into a strong start to sales, with 33 apartments transacting in the project's first 35 days.

Palumbo said the early purchaser profile had been consistent with the group's traditional focus on owner-occupiers rather than investor-led apartment stock.

"Local owner-occupiers have always been our market," he said.

"There are always some investors, but we've never developed what would be called traditional development stock. Owner-occupiers are very much our market."

[smartcode_project:default project_id=6109 project_image_fid=376068]

The buyer mix has been diverse so far, with downsizers and younger professionals both accounting for a significant portion of early sales.

South Australia's current stamp duty settings, which allow&nbsp;eligible homeowners in South Australia aged 60 savings of up to $103,830 on stamp duty when they downsize to a new property valued at up to $2 million,&nbsp;have helped encourage downsizer activity, while younger buyers in their late 20s and early 30s have been attracted to the opportunity to live immediately outside the CBD while still being able to walk into the city.



Location has been a major part of the proposition for both buyer cohorts.

[smartcode_project:default project_id=6109 project_image_fid=376075]

Royal Apartments sits on North Terrace directly opposite the Adelaide Park Lands, with residents able to walk through the parklands toward the East End, Rundle Street and Rundle Mall.

Apartments have been positioned to capture views across the parklands, Adelaide skyline, Botanic Gardens and Adelaide Hills.

Palumbo believes the scarcity of developable land along this section of the Park Lands makes the site particularly difficult to replicate.

"There's very few allotments on that side that can be developed," he said.

"If this location was in New York and you were sitting on Central Park, you'd be talking about a $60 million apartments."

Royal Apartments will offer a broad mix of residences, ranging from one-bedroom apartments through to four-bedroom sub-penthouses and penthouses.

Current listings include one-bedroom apartments from $680,000, while larger three and four-bedroom residences are priced around $2.5 million.

Residents will have access to a swimming pool, gym, barbecue and recreation areas, residents' lounge and dining space, and a communal deck.

[smartcode_project:default project_id=6109 project_image_fid=376067]

The apartments will feature generous balconies, while secure parking, bicycle storage and storage cages will also be provided.

A porte-cochère-style arrival and drop-off area has also resonated with buyers, particularly those attracted to being able to walk into the CBD during the day while retaining secure vehicle access at home.

Palumbo is acting as developer, architect and builder on Royal Apartments, continuing the vertically integrated model it has used across its South Australian portfolio.

The group was also behind the $150 million Sofitel Adelaide, the 251-room five-star hotel and residential tower which opened in 2021.

Palumbo said Royal's launch had come at an interesting time for the broader Adelaide apartment market.

Buyer confidence had initially been impacted by uncertainty surrounding the Federal Budget and broader economic conditions, but Palumbo believes sentiment is beginning to improve against a backdrop of significant investment flowing into South Australia.

He pointed to increased activity across defence and resources, including Olympic Dam, as potential long-term drivers of the state's economy and housing market.

"Money is starting to flow into Adeliade, significant amounts as Adelaide bucks the trend of the rest of the country.," Palumbo said.

"There's a lot of activity in the economy over the next decade. I think more investment will come into this market."

Early works on Royal Apartments are expected to commence this year, with major construction activity and cranes anticipated on site from early next year.

[smartcode_project_cta:default project_id=6109]

Palumbo's return to Kent Town strikes early chord with buyers

Go-to builder-developer <a href="https://www.apartments.com.au/developers/graya">GRAYA</a> is continuing to bulk out its already impressive and diverse apartment portfolio across South East Queensland. Their latest milestone is securing development approval for Silk, its boutique riverfront apartment development in St Lucia.

The approval clears&nbsp;the way for the team to begin construction planning for the 22-residence project.

<a href="https://www.apartments.com.au/new-apartments/silk-st-lucia-16-18-sandford-street-st-lucia-qld-4067">Silk</a> will rise 15 levels from an 810 sqm site at 16-18 Sandford Street, occupying a prominent bend of the Brisbane River with a prized northern aspect across Orleigh Park toward the Brisbane CBD.

The approved scheme will comprise 16 split-floor and six full-floor residences, continuing GRAYA's move into larger-format apartment developments targeting Brisbane's prestige owner-occupier market.

The project has been designed around the site's broad river frontage and dual-direction views, with GRAYA prioritising larger residences, privacy and outlook over apartment yield.

<img alt="Silk St Lucia" data-entity-type="file" data-entity-uuid="aa5c2349-f96c-4914-a812-1f2cd6827af8" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%208.25.44%E2%80%AFAM.png?VersionId=WY0vEU_7vYjeRJKQHiCwFdMxu8PvFh52" />

GRAYA Co-founder and Chief Executive Officer Rob Gray said the project had been shaped around local homeowners wanting to remain in St Lucia without maintaining a traditional family home.

"St Lucia is one of those suburbs people do not want to leave," Gray said.

"They know the river, the trees, UQ, the golf course, Toowong and Indooroopilly, and that familiarity is hard to replace.

"True riverfront opportunities here are exceptionally scarce. What we have designed at Silk is a way to stay in the suburb people love, with the scale and privacy of a private home and far less to maintain.

"This is not typical apartment product. It is a proper home on the river, and that is exactly what this market has been missing."

The approval comes as new apartment development continues to increase across the St Lucia and neighbouring Toowong corridor, although direct riverfront sites remain considerably more tightly held.

GRAYA Co-founder and Managing Director Andrew Gray said securing the approval had removed a significant element of development risk from Silk.

"Genuine riverfront sites of this quality in St Lucia are not something that comes up regularly," Gray said.

"The approval removes a substantial layer of execution risk, and the location underwrites demand in a way very few inner-city sites can.

"The fundamentals here are as strong as anything we have assessed in Brisbane."

<img alt="Silk St Lucia" data-entity-type="file" data-entity-uuid="d0f3d734-65e1-48e8-8ed3-2e0715ffcdd9" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%208.25.56%E2%80%AFAM.png?VersionId=sOLSs_jdHkXLWbBKzRyayf5BfTb2vPsD" />

Silk will see GRAYA return to a stretch of the Brisbane River where it already has recent construction experience. The vertically integrated group recently completed ARC in neighbouring Toowong as builder for developer Spyre, delivering the riverfront project on a constrained site.

GRAYA will take a different role at Silk, controlling the project from design and development through construction and aftercare under its vertically integrated model.

The development will include a gym and resident leisure areas at ground level, integrated with the river's edge.

Silk joins a growing pipeline for GRAYA across Brisbane and the Gold Coast, which includes Enclave, The Gallery, Coral and Ripple.

The developer-builder has also recently lodged plans for its largest project to date, <a href="https://www.apartments.com.au/new-apartments/the-silo-19-chester-street-newstead-qld-4006">The Silo</a>, a proposed <a href="https://www.apartments.com.au/news/qld/graya-buys-frasers-newstead-site-plans-the-silo-between-james-street-and-gasworks-precincts">$700 million mixed-use development</a> in Brisbane's James Street precinct.

Silk is expected to predominantly target local owner-occupiers and prestige buyers seeking a permanent riverfront home in Brisbane's inner west.

Registrations of interest are now open, with further details on the project and construction program to be released as it progresses.

<hr />
<h2>SILK PROJECT FACTS</h2>

Developer-builder: GRAYA

Project: Silk

Location: 16-18 Sandford Street, St Lucia

Apartments: 22

Built form: 15 levels

Site: 810 sqm riverfront holding

Mix: 16 split-floor and six full-floor residences

Status: Development approved

Next step: Construction planning underway

[smartcode_project_cta:default project_id=152168]

GRAYA greenlit for riverfront St Lucia apartment development, Silk

Economy

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EXPERT OBSERVATION
We’ve entered out 29th year of uninterpreted economic growth. Continued good fortune will require harder decisions.
Official figures released Wednesday show the Australian economy growing at the <a href="https://theconversation.com/why-weve-the-weakest-economy-since-the-global-financial-crisis-with-few-clear-ways-out-122942" target="_blank">slowest pace since the financial crisis</a>.
GDP growth was only 0.5% for the June quarter, meaning that in the past year output grew by a feeble 1.4%.
The figures weren’t a surprise, but they do contain a message about what can go wrong.
Australia has enjoyed 28 years of uninterrupted economic growth, in part due to good management, in part due to good luck, and in part due to happy accidents of timing.
Good management
Credit has to be paid to the economic reforms of the Hawke-Keating era. Labor doesn’t talk about that legacy much these days, but it was a remarkable period of transformation.
From floating the Australian dollar and financial deregulation to the accord with trade unions, tariff reductions, and privatisation of state-owned enterprises, Hawke and Keating opened Australia to the world, and the world to Australia.
Without those reforms the Australian economy would look more like those of Italy, Spain, or Portugal.
And although John Howard was no pushover as a politician, he deserves credit for voting for economic reforms he believed in, even if Labor got the credit for implementing them.
It is worth remembering that there was a time, not so long ago, when politicians put country before party.
Good luck
We’ve also had some pretty good luck as a country. The most obvious piece of luck has been the economic awakening of China.
To have a billion people on our doorstep rapidly and radically transitioning from subsistence farming to sophisticated manufacturing and commerce, hungry for natural resources, sure helped.
Perhaps less obvious has been the rising importance of globally relevant cities around the world.
In his wonderful book, <a href="https://www.propertyobserver.com.au/https://www.amazon.com/Triumph-City-Greatest-Invention-Healthier/dp/0143120549" target="_blank">The Triumph of the City</a>, Harvard economics professor Ed Glaeser chronicles how, as he puts it, “cities magnify humanity’s strengths”.
Modern cities, thanks in part to information technology, spur innovation like never before. They bring talent together, serve as a cradle for entrepreneurship, and provide a vehicle for socioeconomic mobility.
Australia, as a highly urbanised country with two globally relevant cities in Sydney and Melbourne, as well as several other very important cities, has benefited from the triumph of the city more than most countries.
Great timing
But perhaps the greatest piece of good luck we’ve had was timing.
We now know that we live in a low-growth, low-inflation world, known as a secular-stagnation world. Former US Treasury Secretary <a href="https://www.youtube.com/watch?v=KYpVzBbQIX0" target="_blank">Larry Summers</a> says we might have been in one for many years but failed to notice.
In Summers’s telling, secular stagnation was masked in the United States by a massive housing bubble. In Australia it was masked by a housing bubble and a once-in-a century mining boom.
But more to the point, as housing and mining waxed and waned – as these things tend to do – one always seemed to be doing well just as the other was struggling, as the following chart shows:
Helpfully out of sync. Growth in mining output and property prices
<a href="https://images.theconversation.com/files/291063/original/file-20190905-175714-1kro0v6.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/291063/original/file-20190905-175714-1kro0v6.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
Source: ABS
So, not only have we had a “China boom”, we’ve also had a “China hedge”: a source of economic growth not fully synced with, and at times offsetting, housing booms and busts.
What’s next?
In eulogising his brother Robert, <a href="https://americanrhetoric.com/speeches/ekennedytributetorfk" target="_blank">Edward Kennedy quoted from a speech</a> his brother gave in South Africa in 1966, in which he said:
"Our future may lie beyond our vision, but it is not completely beyond our control. It is the shaping impulse of America that neither fate nor nature nor the irresistible tides of history, but the work of our own hands, matched to reason and principle, that will determine our destiny."
There is pride in that, even arrogance, but there is also experience and truth. In any event, it is the only way we can live.
The same might be said of Australia.
We want to believe our national destiny will be shaped by good work, rather than good luck.
For that to be the case, we will need to have some hard discussions about the what government can and should do in the new low growth, low inflation secular-stagnation world.
Richard Holden, Professor of Economics, UNSW.
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-sure-economic-growth-is-low-but-think-about-whats-gone-right-122973" target="_blank">original article</a>.
</body></html>

rh-YsoTT2xMuQ

Sure, economic growth is low, but think about what’s gone right: Richard Holden

<html><body>
EXPERT OBSERVER
Once, emulating Germany would be something to be proud of. Not at the moment.<a href="https://theconversation.com/profiles/richard-holden-118107"> </a>
It’s four years since then Prime Minister Tony Abbott warned Australia had been heading to “<a href="https://www.smh.com.au/politics/federal/tony-abbott-claims-australia-was-heading-for-a-greekstyle-future-20150318-1m1n9n" target="_blank">a Greek-style economic future</a>”.
He was referring to what he said had been happening under the previous Labor government.
When Labor left office in 2013 the federal government’s budget deficit had been 3% of gross domestic product. The Greek government’s had been 7%.
The Australian government’s debt to GDP ratio was 20%. The Greek government’s was 177%.
Australia was never on the path to becoming an economic basket case like Greece, but right now we are on the road to becoming like another European nation.
It also starts with “G”.
Becoming economically like Germany isn’t as scary. But it is genuinely troubling nevertheless.
Germany is not in good shape
Germany’s GDP growth in the June quarter was minus 0.1%. That means economic activity shrank.
Its central bank, the Bundesbank, doesn’t see things getting better <a href="https://edition.cnn.com/2019/08/19/economy/germany-recession-bundesbank/index" target="_blank">any time soon</a>, saying growth “is probably set to remain lacklustre in the third quarter of 2019”.
Interest rates have fallen so low that investors are now <a href="https://www.bloomberg.com/markets/rates-bonds/government-bonds/germany" target="_blank">paying the German government to take their money</a>. The nominal interest rate on two-year German government debt is -0.90%, and on extremely long-term 30-year bonds is -0.15%.
That’s right: even for 30 years into the future, investors think its safer to lose money by parking funds with the German government than to try to make money by using them in other investments.
Put another way, markets think the German economy will be in trouble for decades, meaning short-term German interest rates will have to remain ultra-low for decades.
The German penchant for balanced budgets became (there’s really no other way to put it) fanatical in the wake on the financial crisis of 2008.
Like centre-right governments around the world – Britain was a leading example – a dark fiscal austerity took hold, at precisely the wrong time.
2009 was a time of chronically weak private demand that required both lower interest rates and, as monetary policy was running out of steam, continuing budget deficits.
Instead Germany cut government spending, pushing the budget back into surplus from 2014.
It didn’t get everything wrong.
As I <a href="http://research.economics.unsw.edu.au/richardholden/assets/greece-debt-crisis-afr-july-13.pdf" target="_blank">wrote at the time</a>, Germany was largely right to insist that Greece get its out-of-control spending and government debt under control.
But Germany’s approach to its own economy hurt it and other European economies such as Italy and Spain.
We’re turning German…
With apologies to British 1980s band The Vapors, we’re at risk of “<a href="https://youtu.be/XedDyR0opow" target="_blank">Turning Germanese</a>”.
Like Germany, our interest rates are getting close to zero. OK, Germany has negative nominal 30-year interest rates, but we’ve got negative real 10-year bond interest rates, and zero 30-year bond rates.
Both of our major political parties are gripped by balanced-budget fetishism, appearing to want to balance the budget regardless of the economic context.
Again, here we are not quite as fanatical as Germany, but Labor seems determined to “<a href="https://www.afr.com/politics/federal/labor-promises-23b-surplus-twice-the-coalition-s-20190509-p51lj5" target="_blank">out-surplus</a>” the Coalition to prove its economic management credentials. And the government has made delivering a surplus the centrepiece of its economic agenda.
And, like in Germany, our economic growth is slowing. We don’t yet have negative GDP growth like in Germany, but we do have negative per capita GDP growth.
…but there’s time to pull back
Poor old Reserve Bank governor Philip Lowe has been pleading over and again for more aggressive government spending, particularly on infrastructure, to help complement what he is doing on interest rates.
A couple of cheesy photo ops with Treasurer Josh Frydenberg aside, there’s no evidence of him gaining any traction in Canberra.
Structurally balanced budgets are important, and thinking government debt doesn’t matter is deeply misguided.
But this is the situation we face:
<ul>
<li>
private demand is chronically weak
</li>
<li>
our physical infrastructure has not kept pace with population growth and modern needs
</li>
<li>
our social infrastructure (including all levels of education) is not up to standard
</li>
<li>
interest rate cuts are running out of puff
</li>
<li>
the government can borrow in its own currency, long-term, for close to nothing
</li>
</ul>
Any government that won’t borrow and spend up big and smart in these circumstances is making a huge mistake – one for which we and our children will pay dearly.
If we’re not careful the old Abbott narrative of “we’re about to become Greece” will become true, except about another country whose shoes we would rather not be in.
Richard Holden, Professor of Economics, UNSW.
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-economically-australia-is-at-risk-of-becoming-germany-and-not-in-a-good-way-122217" target="_blank">original article</a>.
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Economically, Australia is at risk of becoming Germany, and not in a good way: Richard Holden

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EXPERT OBSERVER
The easing of wider economic and housing market conditions has given rise to a situation where monetary and fiscal stimulus is possible, without fear of overheating house prices.
HIA released its quarterly economic and industry outlook report today. The State and National Outlook Reports include forecasts for new home building and renovations activity for Australia and each of the eight states and territories.
If economic activity improves, the credit squeeze dissipates, home prices stabilise and the recent stimulus measures take hold, the supply of new work into the pipeline will soon reach its low point. 
All indications are that this stabilisation will occur and prevent a more significant downturn. This will set a new market equilibrium where the supply of new homes meets, rather than exceeds, demographic growth requirements. 
This new equilibrium will see the number of new homes remain around 180,000 per year, not in excess of the 200,000 that have been built each year, for the past five years.
At first glance, demand for new detached homes appears to have held up well with only a 9.0 per cent contraction in starts over the year. This apparent resilience is due to the lag between the sale and commencement of construction of the houses and gives the impression that contemporary market conditions are stronger than is the case.
The apartment market on the other hand is continuing to contract rapidly and starts are now 41.8 per cent lower than a year ago. The number of apartments under construction will continue to fall as more projects reach completion and fewer new projects enter the pipeline. 
The silver lining to this contraction is that there is a convergence of conditions underway in the building industry. We no longer have a boom in east-cost capital cities and stagnating markets elsewhere. 
Interest rates, income taxes and lending restrictions have all been eased in an effort to support activity and economic growth. State and Australian Government investment in infrastructure is also important to support labour market growth.
These measures are now supporting activity in housing markets across the economy. 
Detached house starts are forecast to decline by 7.6 per cent in 2019/20, primarily in the first half of the financial year and stabilise at around these levels for the following two years. 
The drop in multi-unit starts has occurred faster than expected. A further decline of 12.0 per cent is forecast for 2019/20 before a slow improvement in 2021/22.
TIM REARDON is HIA's Chief Economist.
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j.ballantyne1990-6AQqhLzZaK

Market to stabilise 20 per cent below peak: HIA's Tim Reardon

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EXPERT OBSERVATION
Our central forecast is for the Australian economy to expand by 2½ per cent this year and 2¾ per cent over 2020.
The growth forecast for this year has been revised down since we met six months ago, but the forecast for next year is unchanged.
The downward revision this year mainly reflects weak consumption growth.
It has become increasingly clear that the extended period of unusually slow growth in household incomes has been weighing on household spending, as has the adjustment in the housing market.
Given this experience, the outlook for consumption continues to be the main domestic source of forecast uncertainty.
Even so, looking ahead, there are signs the economy may have reached a gentle turning point.
Consistent with this, we are expecting the quarterly GDP growth outcomes to strengthen gradually after a run of disappointing numbers.
This outlook is supported by a number of developments including: lower interest rates, the recent tax cuts, a depreciation of the Australian dollar, a brighter outlook for investment in the resources sector, some stabilisation of the housing market and ongoing high levels of investment in infrastructure.
It is reasonable to expect that, together, these factors will see growth in the Australian economy return to around its trend rate next year.
The major uncertainty continues to be the trade and technology disputes between the United States and China. These disputes pose a significant risk to the global economy. Not only are they disrupting trade flows, but they are also generating considerable uncertainty for many businesses around the world.
Worryingly, this uncertainty is leading to investment plans being postponed or reconsidered. It is also now generating volatility in financial markets and has increased the prospects of monetary easing in many countries. This means that we have a lot riding on these disputes being resolved.
Turning now to the Australian labour market, the unemployment rate, at 5.2 per cent, is a little higher than when we met six months ago. This is despite employment growth having been stronger than we had expected. What has happened is that increased demand for labour has been met with more labour supply, especially by women and older Australians.
Reflecting this, a higher share of the Australian adult population is participating in the labour market than ever before. This is good news. But one side-effect of this flexibility of labour supply is that it is harder to generate a tight labour market and so, in turn, it is harder to generate a material lift in aggregate wages growth.
Looking forward, while some slowing in employment growth is expected, the central scenario is for the unemployment rate to move lower to reach 5 per cent again in 2021. If things evolve in line with this central scenario, it is probable that we will still have spare capacity in the labour market for a while yet, especially taking into account underemployment.
This means that the upward pressure on wages growth over the next couple of years is likely to be only quite modest, and less than we were earlier expecting.
Caps on wages growth in public sectors right across the country are another factor contributing to the subdued wage outcomes. At the aggregate level, my view is that a further pick-up in wages growth is both affordable and desirable.
Turning now to inflation, the June quarter outcome was broadly in line with expectations, after a run of lower-than-expected numbers in earlier quarters. Over the year to June, inflation was 1.6 per cent, in both headline and underlying terms, extending the period over which inflation has been below the 2–3 per cent medium-term target range.
The Reserve Bank Board remains committed to having inflation return to this range, but it is taking longer than earlier expected.
There are a few factors that I would highlight as contributing to the low inflation outcome over the past year.
\These are: the slow growth in wages; the ongoing spare capacity in the economy; various government initiatives to address cost-of-living pressures on households; and the adjustment in the housing market, which has contributed to unusually low increases in rents and declines in the price of building a new home in some cities.
Working in the other direction, the drought and the depreciation of the exchange rate have been pushing some prices up.
Looking ahead, inflation is still expected to pick up, but the date at which it is expected to be back at 2 per cent has been pushed out again. Over 2020, inflation is forecast to be a little under 2 per cent and over 2021 it is expected to be a little above 2 per cent.
These comments were made during the <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-08-09" target="_blank">opening statement</a> to the House of Representatives Standing Committee on Economics.
PHILIP LOWE is the current Governor of the RBA
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Australian economy may have reached a gentle turning point: Philip Lowe

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GUEST OBSERVATION
Deloitte Access Economics <a href="https://www2.deloitte.com/au/en/pages/economics/articles/great-barrier-reef" target="_blank">has valued</a> the Great Barrier Reef at A$56 billion, with an economic contribution of A$6.4 billion per year. Yet this figure grossly underestimates the value of the reef, as it mainly focuses on tourism and the reef’s role as an Australian icon.
When you include aspects of the reef that the report excludes, such as the ecosystem services provided by coral reefs, you find that the reef is priceless.
Putting a price on the Great Barrier Reef buys into the notion that a cost-benefit analysis is the right way to make decisions on policies and projects that may affect the reef. For example, the environmental cost of the extension to the <a href="https://www.propertyobserver.com.au/http://www.abc.net.au/news/2015-12-22/massive-abbot-point-coal-port-expansion-gets-federal-approval/7047380" target="_blank">Abbot Point coal terminal</a> can be compared to any economic benefits.
But as the reef is both priceless and irreplaceable, this is the wrong approach. Instead, the <a href="http://unesdoc.unesco.org/images/0013/001395/139578e.pdf" target="_blank">precautionary principle</a> should be used to make decisions regarding the reef. Policies and projects that may damage the reef cannot go ahead.
How do you value the Great Barrier Reef?
The Deloitte report uses what’s known as a “contingent valuation” approach. This is a survey-based methodology, and is commonly used to measure the value of non-market environmental assets such as <a href="http://www.appstate.edu/%7Ewhiteheadjc/eco3620/projects/mocktrial/pdf/loomisandwhite-ee-1996.pdf" target="_blank">endangered species</a> and <a href="http://www.jstor.org/stable/pdf/2663496.pdf" target="_blank">national parks</a> – as well as to calculate the impact of events such as <a href="http://econweb.ucsd.edu/%7Ercarson/papers/AlaskaReport.pdf" target="_blank">oil spills</a>.
In valuing the reef, surveys were used to elicit people’s willingness to pay for it, such as through a tax or levy. This was found to be A$67.60 per person per year. The report also uses the travel-cost method, which estimates willingness to pay for the Great Barrier Reef, based on the time and money that people spend to visit it. Again, this is commonly used in environmental economics to value national parks and the recreational value of local lakes.
Of course, all methods of valuing environmental assets have limitations. For example, it is difficult to make sure that respondents are stating realistic amounts in their willingness to pay. Respondents may act strategically if they think they really will be slugged with a Great Barrier Reef levy. They may conflate this environmental issue with all environmental issues.
But more importantly, the methodology in the report leaves out the most important non-market value that the reef provides, which are called <a href="http://www.environment.gov.au/biodiversity/publications/ecosystem-services-key-concepts-and-applications" target="_blank">ecosystem services</a>. For example, coral reefs provide storm protection and erosion protection, and they are the nurseries for 25% of all marine animals which themselves have commercial and existence value.
The Deloitte report even cites (but does not reference) a <a href="http://www.sciencedirect.com/science/article/pii/S0959378014000685" target="_blank">2014 study</a> that values the ecosystem services provided by coral reefs at US$352,249 per hectare per year. The Great Barrier Reef Marine Park <a href="https://www.npsr.qld.gov.au/world-heritage-areas/great_barrier_reef" target="_blank">covers 35 million hectares</a> with 2,900 individual reefs of varying sizes. This means the ecosystem services it provides are worth trillions of dollars per year.
That is, it is essentially priceless.
The problem with putting a value on the Reef
Valuing the environment at all is <a href="https://www.theguardian.com/environment/georgemonbiot/2014/jul/24/price-nature-neoliberal-capital-road-ruin" target="_blank">contentious</a> in <a href="http://www.sciencedirect.com/science/article/pii/S0095069684710084" target="_blank">economics</a>. Valuation is performed so that all impacts from, say, a new development, can be expressed in a common metric – in this case dollars. This allows a cost-benefit analysis to be performed.
But putting a price on the Great Barrier Reef hides the fact that it is irreplaceable, and as such its value is not <a href="http://le.uwpress.org/content/82/2/141.short" target="_blank">commensurate</a> with the values of other assets. For instance, using Deloitte’s figure, The Australian newspaper <a href="http://www.theaustralian.com.au/national-affairs/great-barrier-reef-valued-at-more-than-12-opera-houses-study/news-story/33e7f7420e2b41bf9efd6a4aa6e3351b">compared the reef</a> to the value of 12 Sydney Opera Houses. But while they are both icons, the Opera House can be rebuilt. The Great Barrier Reef cannot. Any loss is irreversible.
When environmental assets are irreplaceable and their loss irreversible, a more appropriate decision-making framework is the <a href="http://unesdoc.unesco.org/images/0013/001395/139578e.pdf" target="_blank">Precautionary Principle</a>.
The Precautionary Principle suggests that when there is uncertainty regarding the impacts of a new development on an environmental asset, decision makers should be cautious and minimise the maximum loss. For example, if it is even remotely possible that the extension to the Abbot Point coal terminal could lead to <a href="https://www.propertyobserver.com.au/http://www.abc.net.au/news/2015-12-22/massive-abbot-point-coal-port-expansion-gets-federal-approval/7047380" target="_blank">massive destruction</a> of the reef, then precaution suggests that it shouldn’t go ahead.
Assigning a value to the reef might still be appropriate under the Precautionary Principle, to estimate the maximum loss. But it would require the pricing of all values and especially ecosystem services.
While the Precautionary Principle has been <a href="http://www.public.iastate.edu/%7Ejwcwolf/Papers/Gardiner%20on%20Precautionary%20Principle.pdf" target="_blank">much maligned</a> due to its perceived bias against development, it is a key element of the definition of Ecologically Sustainable Development in Australia’s <a href="https://www.legislation.gov.au/Details/C2012C00801" target="_blank">Environment Protection and Biodiversity Conservation Act 1999</a>.
For a priceless asset like the Great Barrier Reef, it is perhaps better to leave it as “priceless” and to act accordingly. After all, if the Precautionary Principle is ever going to be used when assessing Ecologically Sustainable Development, in contrast with cost-benefit analysis and valuations, it is surely for our main environmental icon.
Ultimately, the protection and prioritisation of the Great Barrier Reef is a political issue that requires political will, and not one that can be solved by pricing and economics.<img src="https://counter.theconversation.com/content/80061/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;">
Neil Perry, Research Lecturer, Western Sydney University
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/whats-the-economic-value-of-the-great-barrier-reef-its-priceless-80061" target="_blank">original article</a>.
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What's the economic value of the Great Barrier Reef? It's priceless

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EXPERT OBSERVATION 
Australia’s record economic expansion has almost completed its 28th year. Interest rates have fallen to fresh record lows; wages are growing near 2.5%; underlying inflation is around 1.5%; the jobless rate is 5.2%.
Total returns on Australian shares (All Ordinaries Accumulation index) have lifted by 11.4% over 2018/19 (20-year average +9.5%) to a smidgen below record highs.
What does it all mean?
The 2018/19 financial year is almost complete and it is an opportune time to see how investments, financial markets and economies have performed over the past year.
Overall, the global economy has slowed over the past year, largely restrained by the US-China trade conflict. Central banks are now favouring rate cuts over rate hikes largely because inflation remains low.
The US economy generally remains in good shape. But Chinese authorities have been stimulating their economy in response to the slowdown caused by the trade dispute with the US.
The Australian economy is currently growing at a 1.8% annual pace – the slowest pace in 9.5 years. Just like other major economies, growth slowed over the year. Uncertainty over the Federal Election result also slowed activity ahead of the May 18 poll. Activity is expected to lift with election uncertainty resolved.
The Reserve Bank has re-assessed policy settings in response to stubbornly low inflation. The Reserve Bank now believes that unemployment can fall to 4.5% before igniting inflationary pressures.
As a result the Reserve Bank cut the cash rate by 25 basis points in June to 1.25% and has flagged another rate cut in coming months.
Inflation is expected to edge higher to around 2% in 2018/19 with unemployment 4.50-5.00%. But much will depend on the global trade environment.
<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/2019/6/25/commsec%201.jpg" alt="">
Returns on shares have lifted by just over 11% in 2018/19 and growth of 7-11% is expected in 2018/19.
The Australian dollar should support the record economic expansion, largely holding in the late 60s/early 70-cent range against the greenback.
<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/2019/6/25/commsec%202.jpg" alt=""> 
What does the data show?
<ul>
<li>Interest rates</li>
</ul>
The cash rate was reduced from 1.50% to 1.25% in June. It was the first rate change since August 2016.
The market-determined 90-day bank bill rate has held between 1.21% and 2.10% over 2018/19 and is ending the year near record lows.
Yields on the long bond – 10-year government bonds – have held in a range of between 1.29% and 2.79% and yields are ending the year near record lows.
<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/2019/6/25/commsec%203%20.jpg" alt="">
<ul>
<li>Currencies</li>
</ul>
The Aussie dollar has fallen around 6% over 2018/19. The Aussie started the year around US74 cents and is ending the year near US69 cents.
We have calculated that the Aussie is ranked 103rd strongest against the US dollar of 120 currencies tracked.
The currencies of Thailand, Egypt, Uganda, Mexico, Philippines and Japan all have lifted around 3-7%.
The weakest currencies have been in the emerging economies of Venezuela, Argentina and Haiti. Only 24 currencies have lifted against the greenback over the year.
<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/2019/6/25/commsec%204.jpg" alt="">
In the first six months of 2019, the Aussie dollar has fallen by around 2% against the US dollar, making it the 97th strongest of 120 currencies tracked.
The currencies of Russia, Egypt, Thailand, Central Africa and Canada have lifted around 3-10%.
The weakest currencies have been the emerging economies of Haiti, Argentina, Turkey, Pakistan and Ghana. Only 42 currencies lifted against the greenback over the year.
The Aussie has gradually trended lower for around two years. Over most of the period US policy interest rates were rising while the Aussie cash rate was left unchanged.
The Aussie fell from around US80 cents to US68 cents (if the January 2019 ‘flash crash’ to US67.43 cents is ignored).
<ul>
<li>Commodities</li>
</ul>
Commodity prices eased over the second half of 2018 in line with slower global growth but recovered some lost ground in 2019.
The Commodity Research Bureau futures index has fallen by 11% over the year, but the CommSec daily index is up 3%.
The difference between the two indexes is basically iron ore, with its price up 81% over 2018/19 while gold and coking coal gained 12%.
Base metal prices fell 10-20%; oil is down 23% while spot natural gas has slid 58% and thermal coal fell 37%.
<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/2019/6/25/commsec%205.jpg" alt="">
Sharemarket
The Australian sharemarket started 2018/19 with the All Ordinaries at 6,289.7 and the ASX200 at 6,194.6.
The All Ords currently stands at 6,734.3 points (up 7.1%) with the ASX200 is at 6,650.8 (up 7.4%). We estimate that Australia is 19th of 72 global bourses.
So far 35 bourses have recorded gains in 2018/19. The best performer has been hyperinflation-affected Zimbabwe but Argentina and Brazil have lifted more than 40%. The US Dow Jones has lifted by around 10%.
<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/2019/6/25/commsec%206.jpg" alt="">
The worst performers have been West Africa, Nigeria, Kenya, Ghana, Lebanon and Pakistan and Egypt. The Irish sharemarket has fallen 12%.
In the first six months of 2019, the All Ordinaries has risen by 18%, ranking Australia 8th of 73 nations. Greece, Argentina, Russia and China have been amongst the top performers (up around 20-37%) while Lebanon, Sri Lanka and Oman are amongst countries recording the biggest declines.
<ul>
<li>Investment returns</li>
</ul>
Total returns on Australian shares (All Ordinaries Accumulation index) have so far lifted by 11.4% over 2018/19, hitting record highs in recent days.
Returns on dwellings have declined by 3.6% to date in 2018/19 while returns on government bonds have lifted by 10.4%.
<ul>
<li>Sectors &amp; size groupings</li>
</ul>
Of the 22 identified industry sub-sectors, only eight have recorded declines in 2018/19.
Leading the gains have been Consumer durables &amp; apparel and Telecom (both up by near 41%) followed by Commercial services (up 21%) with Software &amp; services and Transportation (up 20%).
At the other end of the scale, Household &amp; personal products has fallen by over 36%, followed by Autos &amp; components (down 21%) and Energy and Capital goods (both down 8%).
Of the size categories, the ASX50 has outperformed (up over 9%) from the ASX100 (up 8%) and the Small Ordinaries and MidCap50 (up 1%).
What are the implications for investors?
Returns on shares are near record highs. In fact sharemarket returns have only fallen once in the past 10 years. So an investor that has employed a diversified strategy across asset classes would be well pleased with the performance over recent years.
The outlook for the sharemarket remains positive. The Federal Election is in the background for another three years. And the Reserve Bank has adopted a stimulatory monetary policy.
The Reserve Bank now believes that the economy can operate at a faster pace, thus generating greater job growth with the hope of driving the jobless rate to 4.5%.
The cash rate was cut by a quarter percent in June and a similar decline is expected in the next few months.
But the Reserve Bank doesn’t believe it can do it all alone – it is calling on greater fiscal stimulus.
Certainly Federal and State governments are being active in advancing new infrastructure projects. And with budgets broadly balanced or in modest surplus, there is scope for even more fiscal stimulus to be applied.
Over the coming year, infrastructure building and net exports will add to economic growth.
The Reserve Bank hopes that the stimulatory policy settings will lead to stronger household spending as well. Weaker home building will be the main factor weighing on growth.
Last year we noted: “Over the coming year CommSec expects the All Ordinaries index to be near 6,400-6,600 points in December 2018 and 6,600-6,800 points in June 2019”. The December forecast proved too ambitious but the June forecast looks to be safely achieved.
Over the coming year CommSec expects the All Ordinaries index to be near 6,800-7,000 points in December 2019 and 7,100-7,300 points in June 2020.
Housing markets across the nation are continuing to rebalance to reflect the increase in supply (new home construction).
Lower home prices and rate cuts will ensure that first home buyers remain active.
Investors are also expected to return although sharemarkets are expected to remain more attractive in the short run.
Over 2019/20, national home prices may post small gains between 0-4%. Since the Federal Election there have been signs of stabilisation of Sydney and Melbourne home prices.
The low inflation/low interest rate environment is entrenched, meaning that lower nominal investment returns are also here to stay. So investors will need to remain flexible and alert to the returns achieved across sharemarket sectors and across asset classes to ensure that their savings are keeping pace with the cost of living.
The ‘triple L’ theme (low unemployment, low inflation, low interest rates) will also dominate global markets over the coming year.
In fact the US Federal Reserve is already contemplating rate cuts despite delivering the last rate hike just over six months ago.
The Aussie dollar is expected to largely trade in the late 60s/early 70s against the US dollar over most of the coming year. But interest rate differentials between the US and Australia and the US-China trade discussions are the two factors that could move the Aussie out of the tight range.
At the time of writing, financial markets were waiting on the next instalment of US-China trade talks.
Successful completion of the talks should lead to a major upgrade in prospects for the global economy.
If agreement remains elusive, expect stimulatory monetary policies to remain in place in China as well as advanced global economies.
Craig James is Chief Economist at CommSec. 
Ryan Felsman is Senior Economist at CommSec.
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Economic growth slows with more stimulus on the way: CommSec's year in review 

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EXPERT OBSERVER
For some time our view has been a less upbeat on the Australian economy than the consensus and notably the RBA.
The reasons were simple.
The housing cycle has turned down and this is weighing on consumer spending.
And this is at a time when the risks to the global economy have increased as the trade war threat has ramped up again.
All at a time when high levels of underemployment are keeping a lid on wages growth and, along with technology and competition, inflation.
Consequently we have been expecting rate cuts this year which have now commenced and have further to go.
We see a strong case for more fiscal stimulus to help the RBA in boosting growth and see an increasing risk that the RBA may have to use some form of quantitative easing to achieve its inflation target.
But the gloom around the Australian economy seems to have gone over the top lately with all the talk around rate cuts adding to the sense of malaise and more and more talk about a recession being inevitable.
Surely it can’t be that bad!
And why despite all this doom and gloom is the share market at an 11- year high, up 16% year to date and just 4% shy of its 2007 resources-boom high.
There must be some positives around.
And there are!
So, to inject some balance into the debate around Australia here is a list of positives.
They are partly why we don’t see Australia as being about to plunge into recession.
1. Australia’s current accounts deficit has collapsed
As a share of GDP, it’s the lowest since the 1970s as high iron ore prices have combined with solid growth in export volumes and pushed the trade balance into a record surplus. The current account deficit is the gap between what we spend as a nation and what we earn – so its near disappearance means we are less dependent on foreign capital. This is a big one given that a big scare of the 1980s in Australia was that the large current account deficit and rising foreign debt would lead to a major crisis, collapse the economy and require an IMF bailout. Like with most doomster stories on Australia, we are still waiting!
<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/2019/6/29/oliver%201.jpg" alt="">
Source: ABS, AMP Capital
2. The Australian dollar helps stabilise the economy The $A is down 38% from its 2011 high and is likely to fall further and this provides a shock absorber for the Australian economy as a lower $A makes Australian businesses that compete internationally more competitive – eg higher education, tourism, mining, manufacturing, agriculture.
3. The drag from falling mining investment is over The big drag on growth (which was up to around 2 percentage points at one stage) as mining investment fell back to more normal levels as a share of GDP is likely over and mining investment plans look to be moving up again.
4. There is scope for extra fiscal stimulus The Federal budget is nearly back in surplus and while we have had a long run of deficits our public finances are in good shape compared to the US, Europe and Japan.
<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/2019/6/29/oliver%202.jpg" alt="">
Source: IMF, AMP Capital
Some fiscal stimulus is already on the way with tax refunds for low and middle income earners. While the Government is focussed on achieving a surplus it seems to be recognising the case to do more to help the economy with talk of bringing forward infrastructure spending.
5. Infrastructure spending is booming Infrastructure spending is booming. While growth in public capex may peak this year, NSW has flagged another round of asset sales to fund new infrastructure spending and suggestions to bring back Joe Hockey’s asset recycling program (that saw the Federal Government provide a financial incentive to states to sell existing assets and use the proceeds to plough back into new infrastructure spending).
6. There is no sign of panic property selling Despite the falls in property prices we have seen no sign of a “crash”. Non-performing loans are still relatively low even in Perth where prices are down nearly 20%. There has been no significant panic selling. The switch for many from interest only loans to principle and interest has not seen mass defaults or mass selling. And the combination of the removal of the threat to negative gearing and the capital gains tax discount along with rate cuts has seen buyer interest return.
7. The political environment remains sensible While the Federal election has been analysed to death, the bottom line is that Australians as a whole were not prepared to support a populist agenda of higher taxes on the “top end of town”, substantially increased public spending and redistribution. Just like they weren’t prepared to support a more right-wing free market agenda in 1993. Australia is not immune to the populism seemingly sweeping the world, but it seems to be limited to a relatively minor influence. Maybe it’s the moderate climate, maybe it’s the lack of extreme inequality, maybe it’s the compulsory voting system that keeps motivated extremists in their place in favour of a sensible centre.
Whatever it is – economic policy making in Australia could always be better (economists would love to see a greater focus on economic reform) but it’s generally pretty sensible.
8. Population growth remains strong Australia’s population growth at around 1.5% pa is strong and supported by a high fertility rate and high levels of immigration. While it’s far from a world beater – with the top 10 countries by population growth seeing growth of between 3 to 5% pa - it is at the high end of comparable countries and roughly double the OECD average and of the US and UK and is faster than India.
Of course, strong population growth is not without issues –around integration, congestion, the environment, adequate housing and infrastructure. And ultimately in terms of living standards it is economic growth per person (or per capita) that matters not total growth and lately per capita GDP has gone backwards. But solid population growth also has significant benefits in terms of supporting demand growth in the economy, preventing lingering oversupply (as today’s excess – say Sydney apartments – can quickly turn into tomorrow’s shortfall) and keeping the economy dynamic. It also means that while Australia’s population is ageing, the problem is far less challenging than in most advanced countries as by comparison Australia with a median age of 37 is relatively young and it has a relatively low old age dependency ratio.
9. The RBA can still do more While the official cash rate is at a record low of 1.25%, it can still go lower and we think it will, whereas in Europe and Japan rates are already at zero (or just below). Our view remains that the RBA will cut the cash rate to 0.5% beyond which it will probably conclude it’s of little benefit as it will make it harder for banks to pass on rate cuts as they will have more bank deposits at zero and so cutting mortgage rates would mean reduced profit margins and probably less lending.
But the RBA can still do quantitative easing – if needed. This basically involves seeking to boost the economy by injecting more cash into the economy using printed money. The lesson from the US, Europe and Japan was to go early and go hard. Japan and then Europe left it a bit too late, but the US went early and has achieved more success with QE.
QE as practiced there – using printed money to buy assets on the hope that banks would use the cash to lend, people would borrow and investors would help the economy by taking on more risky investments – may help. But it may not be the most efficient approach (as much of the cash just ended up in bank reserves) or the most equitable (to the extent it boosted prices for shares and other risky assets that are disproportionately held by high income/wealthier people).
A better option in terms of QE may be to use printed money to finance fiscal stimulus – maybe by directly buying bonds issued by the government. This is a radical step. The Austrian economists would scream hyperinflation! But they did with QE in the US a decade ago too and we are still waiting. In any case the problem is a lack of inflation and the risk of deflation. But it would work in terms of boosting spending in a fair way. It could involve either government spending on things like infrastructure (which both adds to demand and the economy’s productive potential) or tax cuts or “cheques in the mail” with use by dates.
But bear in mind Australia is a long way from needing to do this – we are not in recession so it’s really a debate about what can be done ahead of time which is actually healthy. Better this than wait for a crisis to hit then scramble on what to do.
Australian shares – what’s going on? Which brings us to the strong Australian share market. Much of the recent surge in the Australian share market reflects strong gains in mining stocks on the back of the strong iron ore price, strong demand for high yielding stocks as bond yields have plunged and the post-election bounce. And if global shares have a further setback on the back of trade fears then Australian shares will be impacted too. But it’s also worth noting that the Australian share price index has underperformed global share markets for almost a decade now reflecting tighter monetary policy from October 2009, the surge in the $A into 2011, the end of the commodity price boom, worries about a property crash and a mean reversion after Australia’s 2000 to 2009 outperformance. Many of these factors have run their course, have reversed or have been factored in by the share market so maybe the decade-long underperformance by Australian shares is coming close to an end.
<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/2019/6/29/oliver%203.jpg" alt="">
Source: Thomson Reuters, AMP Capital
Concluding comment The point about all this is that while Australian growth may be going through a rough patch and this could go on for a while yet, there is a bunch of things going well for the Australian economy and there is plenty of scope for more monetary and fiscal stimulus. So – barring a significant global downturn threatening our export earnings big time – recession is unlikely, and it would be wrong to get too gloomy on Australia.
SHANE OLIVER is the Head of Investment Strategy and Chief Economist at AMP Capital 
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soliver-smf6LQXgW9

Nine reasons why an Australian recession is unlikely: Shane Oliver

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EXPERT OBSERVER
The Australian economy grew by just 0.4% in the March quarter. It was a pick up from 0.2% in the December quarter, but over the year the four quarters taken together amounted to only 1.8%.
It’s the first time Australia’s annual economic growth rate has had a “1” in front of it since 2013, and the lowest annual growth rate since the global financial crisis.
<h2>Economic growth begins with ‘1’</h2>
1.8% is a big step down from the decade average of 2.6% displayed by Treasurer Josh Frydenberg on a chart prepared by his office, and below most estimates of the potential growth rate of the economy.
<hr>
Real GDP growth
<a href="https://images.theconversation.com/files/278058/original/file-20190605-40731-1tfy7tz.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/278058/original/file-20190605-40731-1tfy7tz.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Commonwealth Treasury
<hr>
And most of the 1.8% was the result of population growth.
GDP per capita fell marginally in the March quarter after slipping by 0.1% and 0.2% in the previous two quarters.
<h2>Growth per person is weak</h2>
It means GDP per capita has fallen for three consecutive quarters – the first time that has happened in almost four decades, since the early 1980s recession.
Over the year to March, GDP per person grew just 0.1%, a result that suggests living standards barely grew.
But actual living standards grew by more. The Bureau of Statistics says the best guide is “real net national disposable income per capita,” a measure that takes better account of prices paid and income received.
It grew by a more impressive 1% and 0.5% in the December and March quarters on the back of sharply higher commodity prices, suggesting that, for the moment at least, living standards are not going backwards.
<h2>Household spending growth is weak</h2>
Household spending climbed only 1.7% over the year, barely more than population growth. The treasurer’s graph shows it was and well below recent average growth of 2.7%.
Household consumption growth accounted for just 0.1 points of the 0.4 points of economic growth over the quarter, which is well down on its usual substantial contribution as it is the largest component of output - around 60%.
<hr>
Growth in household consumption
<a href="https://images.theconversation.com/files/278059/original/file-20190605-40731-1txzoz5.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/278059/original/file-20190605-40731-1txzoz5.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Commonwealth Treasury
<hr>
Consumption of discretionary items such as restaurant meals and entertainment, fell while consumption of essentials such as electricity, health services and rent, continued to climb.
The treasurer’s chart showed that most of the items on which we cut spending were discretionary.
<hr>
Growth in consumption by category
<a href="https://images.theconversation.com/files/278102/original/file-20190605-40723-1gbqj8d.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/278102/original/file-20190605-40723-1gbqj8d.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> March quarter. Commonwealth Treasury
<hr>
<h2>Home building is falling</h2>
Low wages growth and falling housing prices are factors dampening consumption growth. The downturn in the housing market is also weighing on output growth through falling construction. In the March quarter it declined 2.5%, and was 3.1% lower over the year, a far cry from 10% plus annual growth rates achieved as recently as three years ago.
<hr>
Growth in dwelling investment
<a href="https://images.theconversation.com/files/278081/original/file-20190605-40731-jaxr75.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/278081/original/file-20190605-40731-jaxr75.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Commonwealth Treasury
<hr>
<h2>Government spending has surged</h2>
By itself the government sector was responsible for half of the economic growth in the quarter, contributing 0.2 of the 0.4 percentage points.
Government spending surged more than 5% over year reflecting growth in spending on the National Disability Insurance Scheme and infrastructure.
<hr>
Growth in new public final demand
<a href="https://images.theconversation.com/files/278083/original/file-20190605-40758-y551n1.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/278083/original/file-20190605-40758-y551n1.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Commonwealth Treasury
<hr>
<h2>Exports supported growth</h2>
Net exports contributed another 0.2 points to the 0.4 points of economic growth, with exports of rural goods, ores and minerals and services increasing.
Imports fell slightly, reflecting a weak economy.
Australia’s terms of trade – the ratio of export to import prices – jumped 3.1% as supply disruptions – including a dam burst in Brazil – boosted the spot price of iron ore.
<h2>Investment has flatlined</h2>
Although business investment was 1.3% lower over the year, it climbed 0.3% and 0.6% in the December and March quarters, suggesting that the worst of the slide might be over.
Treasurer Frydenberg said it was a tale of two sectors - investment in mining fell 1.8% over the quarter and was down 10.6% over the year as part of the transition from the investment in new facilities to production.
More encouragingly, non-mining investment grew by 2% in the quarter, reflecting commercial construction.
<hr>
Growth in new business investment
<a href="https://images.theconversation.com/files/278100/original/file-20190605-40715-dnkuex.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/278100/original/file-20190605-40715-dnkuex.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Commonwealth Treasury
<hr>
<h2>Inflation is weak</h2>
Inflation is determined by productivity-adjusted wages (unit labour costs) and import prices.
Unit labour cost growth moderated to be up just 0.3% in the quarter. Labour productivity (GDP per hour) declined 0.5% in the quarter to be down 1% over the year.
Import prices fell slightly, although given the recent depreciation in the Australian dollar means they are likely to increase in the near term. For the moment it adds up to little inflationary pressure.
<h2>Households are less optimistic</h2>
Consumers’ expectations, as measured by the Westpac-Melbourne Institute Consumer Sentiment Expectations Index, have softened slightly this year, but remain well above the lows reached during the global financial crisis and early 1990s recession.
The index is made up of answers to questions about expectations for family finances over the next 12 months, economic conditions over the next 12 months, and economic conditions over the next five years.
They are presented on a scale where 100 means expectations of improving conditions balance those of worsening conditions and greater than 100 means optimistic responses outweigh the pessimistic.
<hr>
Westpac Melbourne Institute Consumer Sentiment Expectations Index
<a href="https://images.theconversation.com/files/278616/original/file-20190610-52753-1jdb9gq.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/278616/original/file-20190610-52753-1jdb9gq.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Trend, 100 means positive expectations balance negative expectations. Melbourne Institute
<hr>
<h2>Further ahead, the signs aren’t good</h2>
Subdued economic growth may well continue for some time. This is suggested by the Westpac Melbourne Institute Leading Index for April which points to below-trend growth for the next 3 to 9 months.
The index combines a selection of economic variables whose movements typically point to movements in gross domestic product, including the S&amp;P/ASX 200 stock index, dwelling approvals, US industrial production, the Reserve Bank Commodity Prices Index, aggregate monthly hours worked, the consumer sentiment expectations index the Westpac-Melbourne Institute Unemployment Expectations Index, and a financial market yield spread.
<hr>
Westpac Melbourne Institute Leading Index
<a href="https://images.theconversation.com/files/278098/original/file-20190605-40731-1r4yvtt.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/278098/original/file-20190605-40731-1r4yvtt.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> Percentage deviation from trend growth, smoothed. Melbourne Institute
<hr>
This week’s Reserve Bank rate cut and those that follow will provide some support. The important question is how much will be needed.
More sluggish world growth due to increased trade tensions is likely to weigh on export growth in the near term. The depreciation in the Australian dollar, however, will provide a buffer.
A positive aspect for the consumption outlook is that there are tentative signs that the pace in decline in house prices is moderating, although what will happen is highly uncertain.
Overall, consumption growth is likely to continue to be soft, with at best only modest improvements in the near term. The downturn in residential construction clearly has further to run, with dwelling approvals in April down 24% on a year ago.
The government sector will have to continue to be an important source of growth in the near term. Whether non-mining investment growth will maintain its recent momentum is uncertain, as subdued consumption growth and the downturn in residential construction might dampen firms’ demand.
A problem faced by the Reserve Bank is that inflation has now undershot its target for so long that may be feeding into inflation expectations, making achieving the target more difficult.
Given the relative health of its budget, and Australia’s infrastructure needs, the government itself is in a position to step up and do more to boost the economy.
Look further ahead, the national accounts make clear that the government will have address Australia’s lacklustre productivity growth. It has been given a lot to work through.<img src="https://counter.theconversation.com/content/118273/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/tim-robinson-138270" target="_blank">Tim Robinson</a>, Senior Research Fellow (Macroeconomics), Melbourne Institute, <a href="http://theconversation.com/institutions/university-of-melbourne-722" target="_blank">University of Melbourne</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/expect-weak-economic-growth-for-quite-some-time-what-wednesdays-national-accounts-tell-us-118273" target="_blank">original article</a>.
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Expect weak economic growth for quite some time. What the national accounts tell us

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GUEST OBSERVATION
The facts are not in dispute.
Annual GDP growth has fallen to <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0" target="_blank">1.8%</a>. On a per-capita basis we have had three consecutive quarters of negative growth. The last time that happened was during the drought and recession of <a href="https://theconversation.com/expect-weak-economic-growth-for-quite-some-time-what-wednesdays-national-accounts-tell-us-118273" target="_blank">1982</a>, almost four decades years ago.
The most recent inflation reading was literally <a href="https://theconversation.com/vital-signs-zero-inflation-means-the-reserve-bank-should-cut-rates-as-soon-as-it-can-on-tuesday-week-115931" target="_blank">zero</a>. Real wage growth has been stagnant <a href="https://theconversation.com/this-is-what-policymakers-can-and-cant-do-about-low-wage-growth-101025" target="_blank">for six years</a>. Household debt is nearly <a href="https://bit.ly/2K0KbIZ" target="_blank">double</a> disposable income. And underemployment is <a href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0" target="_blank">more than 8%</a>, on top of a 5.2% rate of unemployment.
What is in dispute is what to do about it.
We’ve entered secular stagnation
After being been told for years that the economy is in good shape and that we are <a href="https://www.businessinsider.com.au/video-prime-minister-malcolm-turnbull-on-his-1-billion-ideas-boom-2015-12" target="_blank">“transitioning away from the mining boom”</a>, it’s time to face the reality that, like most advanced economies, we are in a low-growth, low-interest rate, low-inflation trap.
Former US Treasury Secretary Larry Summers has argued for some time that advanced economies, almost universally, are suffering from what he calls “<a href="https://theconversation.com/secular-stagnation-its-time-to-admit-that-larry-summers-was-right-about-this-global-economic-growth-trap-112977" target="_blank">secular stagnation</a>” — a protracted period of low growth caused by too much savings chasing too few productive investment opportunities.
If the description applies to us, and it does, there are only two ways to escape it.
We’ve two options
One is unconventional monetary policy: measures that have the effect that pushing interest rates below zero would have.
The other is aggressive fiscal policy: either big (and if necessary, repeated) tax cuts or a big (and if necessary, repeated) boost in government spending, each of which would put the <a href="https://theconversation.com/vital-signs-when-it-came-to-the-surplus-both-bill-and-scott-were-having-a-lend-116806" target="_blank">surplus</a> at risk.
What would an aggressive-enough monetary policy look like?
The starting point is a concept known as the “equilibrium real interest rate”. It’s the real (inflation-adjusted) rate of interest consistent with stable macroeconomic performance (which means full employment without financial bubbles).
1: Aggressive monetary policy
There is <a href="https://www.brookings.edu/wp-content/uploads/2019/03/On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secular-Stagnation.pdf" target="_blank">compelling evidence</a> that in advanced economies such as Australia the equilibrium real interest rate is negative.
But getting there in a low-inflation environment is hard. The Reserve Bank can, if it chooses, set the cash rate as low as 0% (<a href="https://theconversation.com/the-reserve-bank-will-cut-rates-again-and-again-until-we-lift-spending-and-push-up-prices-118263" target="_blank">this week it cut it to 1.25%</a>) but it can’t safely move it much lower than zero. If it did, if people and firms found themselves having to pay money in order to keep money in banks, they might simply take their money out, giving the Reserve Bank even less control.
This problem is known as the “zero lower bound”. It means that if the bank needs to cut rates beyond than zero it’ll probably have to do something else that has a similar effect.
The most likely candidate is “<a href="https://theconversation.com/now-is-the-time-to-plan-how-to-fight-the-next-recession-111497" target="_blank">quantitative easing</a>” (QE), whereby the central bank buys long-term government bonds and other securities from investors that have them, effectively forcing cash into their hands, which the zero interest rate means they have little choice but to spend.
It shows up in lower longer-term interest rates (rates for borrowing 5, 10 or even 30 years into the future) and should boost spending and borrowing just as much as cutting short-term rates.
There are at least three difficulties with QE in Australia.
The first is that because the Reserve Bank has never done it before, there are questions about how it would mechanically execute on it. The United States and European experience is helpful in providing a template.
The second difficulty is getting out. Nobody, including the US Federal Reserve, really knows what happens when QE is unwound.
Third, if secular stagnation persists, then QE needs to be a long-term strategy. But is it possible for a central bank to expand its balance sheet buying bonds and securities indefinitely, even if it was buying them at a modest pace? Again, nobody knows.
2: Aggressive fiscal policy
If nothing else, the headaches with monetary policy suggest that fiscal policy might be an attractive alternative. It might also be more effective.
As Reserve Bank governor Philip Lowe noted <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-06-04" target="_blank">in a speech on Tuesday</a>, done in a good way government spending on infrastructure could both boost the economy and boost longer term productivity, giving a double benefit. It could be complemented by “structural policies that support firms expanding, investing, innovating and employing people”.
It’s hard to argue with Lowe’s logic. So hard in fact that some of us have been saying <a href="https://www.afr.com/opinion/big-project-spending-a-good-way-to-kickstart-stagnant-economy-20150819-gj2i7v" target="_blank">exactly what he just said for some time</a>.
A quicker way to boost the economy would be to splash cash, either as Kevin Rudd did in the form of cash payments during the global financial crisis, or in the form of <a href="https://theconversation.com/its-the-budget-cash-splash-that-reaches-back-in-time-114188" target="_blank">tax offsets</a> of the kind the Morrison government announced in the 2018 and 2019 budgets.
Delivered straight into bank accounts, both have <a href="https://theconversation.com/election-tip-23-9-is-a-meaningless-figure-ignore-the-tax-to-gdp-ratio-115432" target="_blank">much the same effect</a>, even though one is classified as spending and the other as cutting tax.
The obstacle to doing such things is this government’s – make that this country’s – obsession with balanced budgets.
The surplus can wait
I have <a href="https://theconversation.com/vital-signs-do-deficits-matter-any-more-112680" target="_blank">argued strongly</a> and still believe that debt and deficits do matter, but at the moment we are in serious danger of falling into recession. That makes it imperative to act.
Given the politics of budget deficits and the narratives around economic management, it might be that the burden of action falls on the organisation the least able to pull it off in the present circumstances. That’s the Reserve Bank.
If Australia does dip into recession in the next year or two it will be an unforced error.
Not only would the government be responsible for it by not having taken strong enough action on spending when it could, the bank would also be responsible by taking action too late and letting things get to the stage where it had to act while interest rates were near zero.
Richard Holden, Professor of Economics, UNSW
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-if-we-fall-into-a-recession-and-we-might-well-have-ourselves-to-blame-118387" target="_blank">original article</a>.
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If we fall into a recession (and we might) we’ll have ourselves to blame

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The Australian economy grew 0.4 per cent in seasonally adjusted chain volume terms in the March quarter 2019, according to figures released by the Australian Bureau of Statistics (ABS) today. 
Ryan Felsman at CommSec said the economy has lost momentum.
"The annual growth rate is the weakest since September 2009.
"Like other advanced economies, output has slowed since mid-2018 as US-China trade tensions weigh on global growth. But domestic demand has also slowed, as evidenced by low inflation.    
"And soft consumer spending is the main culprit.
"Household incomes are being squeezed due to a combination of modest wages growth and increasing taxes paid due to ‘bracket creep’ (where taxpayers are pushed into higher income tax brackets).
"The negative ‘wealth effect’ from the property downturn is encouraging Aussies to deleverage amid elevated household debt, crimping consumption."
Felsman said the Reserve Bank cut interest rates to fresh record lows of 1.25 per cent yesterday and "appears likely to reduce interest rates to at least 1 per cent."
Chief Economist for the ABS, Bruce Hockman, said the economy continues to grow as we head towards twenty eight years of sustained growth. Government spending was the main contributor to growth reflecting ongoing delivery of services in disability, health and aged care.  Household spending slowed and contributed a modest 0.1 per cent to growth reflecting reduced spending on discretionary goods such as furnishing and household equipment, recreation and culture and hotels, cafes and restaurants.  Dwelling investment continued to detract this quarter. The slowing housing market has resulted in significant falls in ownership transfer costs, particularly stamp duty.   “The Australian economy continues to grow but more slowly than our long term average of 3.5 per cent," Hockman said.
Economist Alex Joiner said the Australian economy remains in a per capita GDP recession with the third consecutive quarterly decline in real GDP per capita.
Commentator Callum Pickering noted Australia has to go all the way back to 2009 - the height of the global financial crisis - to see softer growth.
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Economy

Editor's Picks

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Have something to contribute?

Developments

New apartments

New townhouses

News