<p data-end="587" data-start="368">Queensland builder-developer MAYD has revealed the first look at its major North Kirra beachfront development, lodging amended plans that reduce the number of apartments and increase the proportion of larger residences.</p>

<p data-end="778" data-start="589">The project is planned across a substantial 4,742 sqm amalgamated site spanning seven lots at <a href="https://www.apartments.com.au/new-apartments/2-6-pacific-parade-bilinga-qld-4225">2-6 Pacific Parade</a> and 27-33 Golden Four Drive in Bilin​ga, directly opposite Nor​th Kirra Beach.</p>

<p data-end="907" data-start="780"><a href="https://www.apartments.com.au/developers/mayd-group">MAYD</a> secured the site for $32.5 million in 2025, in what was one of the Gold Coast's largest property transactions of the year.</p>

<p data-end="1052" data-start="909">The development will be delivered across two stages, with the first stage carrying an estimated gross realisation value of around $360 million.</p>

<p data-end="1311" data-start="1054">The latest amendments seek to reduce the overall apartment count and shift the project further toward the owner-occupier market, with larger residences designed for buyers wanting considerably more space than traditionally offered in a beachfront apartment.</p>

<p data-end="1451" data-start="1313">The residential mix will include townhomes, oversized two-bedroom apartments, substantial three-bedroom residences and four-bedroom homes.</p>

<p data-end="1676" data-start="1453">MAYD has appointed Cera Stribley to lead the architecture and interiors, with the Melbourne-based design practice drawing on the beachfront setting through a series of ocean-facing terraces and heavily landscaped balconies.</p>

<p data-end="1908" data-start="1678">Strong horizontal forms and curved balconies will define the exterior, with subtropical landscaping integrated throughout the building to soften the built form and increase the connection between the residences and the beachfront.</p>

<p data-end="2142" data-start="1910">The project will also include an extensive collection of resident wellness and lifestyle facilities, continuing the broader shift across the Gold Coast's luxury apartment market toward larger homes supported by resort-style amenity.</p>

<p data-end="2142" data-start="1910"><img alt="MAYD" data-entity-type="file" data-entity-uuid="d1bcbb05-e659-4b47-8bd4-1e595315e2ad" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%202.05.03%E2%80%AFPM.png?VersionId=jj0XEud1X1DuLt7_KyElhjMdZGOXmLHP" /></p>

<p data-end="2308" data-start="2144">MAYD Founder Todd Mould said North Kirra was increasingly appealing to buyers attracted to the more established, lower-density character of the southern Gold Coast.</p>

<p data-end="2648" data-start="2310">"North Kirra presents one of the most compelling luxury residential opportunities currently emerging in Australia, combining absolute beachfront with the character and authenticity that buyers are increasingly seeking, and the same sense of tight-knit community that defined Burleigh and Currumbin perhaps 10 or 15 years ago," Mould said.</p>

<p data-end="2797" data-start="2650">"With Gold Coast Airport on its doorstep, it also offers a level of accessibility that broadens its appeal across almost every market demographic."</p>

<p data-end="2938" data-start="2799">The project comes as the southern Gold Coast continues to attract an increasing share of high-end apartment development and buyer activity.</p>

<p data-end="3216" data-start="2940">Kirra in particular has emerged as one of the region's more tightly held beachfront markets, with its relatively low-density character, established surf and hospitality scene and proximity to Gold Coast Airport differentiating it from the higher-density markets further north.</p>

<p data-end="3325" data-start="3218">Mould said those characteristics had informed the approach MAYD and Cera Stribley had taken to the project.</p>

<p data-end="3442" data-start="3327">"We've worked closely with Cera Stribley to create a vision that is deeply connected to its surroundings," he said.</p>

<p data-end="3662" data-start="3444">"Inspired by the coastline itself, the architecture has been shaped around space, privacy and resort-style living, creating a collection of homes that reflects the next generation of luxury on the southern Gold Coast."</p>

<p data-end="3818" data-start="3664">MOTIV Managing Director Carly Cottam, who has been appointed to market the project, said buyer attention had continued to move south along the Gold Coast.</p>

<p data-end="4076" data-start="3820">"Purchasers who may once have defaulted to Broadbeach, Main Beach or Surfers Paradise are increasingly recognising the value of a genuine beachfront location that offers lower density, strong amenity and a more established sense of community," Cottam said.</p>

<p data-end="4375" data-start="4078">"Kirra has a powerful combination of growing demand and genuine scarcity. Beachfront supply is inherently constrained, the area remains relatively low density, and buyers are increasingly placing a premium on locations that feel established, uncrowded and authentic rather than heavily developed."</p>

<p data-end="4503" data-start="4377">Cottam said the proximity to Gold Coast Airport was also proving increasingly important for interstate and second-home buyers.</p>

<p data-end="4741" data-start="4505">"Being minutes from Gold Coast Airport makes it particularly compelling for interstate buyers, frequent travellers and second-home purchasers who can access an authentic coastal lifestyle almost immediately after stepping off a flight."</p>

<p data-end="4910" data-start="4743">The acquisition takes MAYD's active development portfolio to more than $500 million, with the North Kirra project representing one of its largest undertakings to date.</p>

<p data-end="4951" data-start="4912">MAYD is targeting an early 2027 launch.</p>


Joel Robinson

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

<main data-perf-region="main">
<p data-end="600" data-start="394">Castle Hill, the longtime hub of the Hills District, has been one of the major beneficiaries of Sydney's Metro expansion, with improved connectivity helping drive continued population growth, development and buyer demand across the Hills District.</p>

<p data-end="733" data-start="602">But despite that growth, the suburb has seen relatively few major new apartment projects brought to market over the past 18 months.</p>

<p data-end="970" data-start="735">Hills District developer Reve Group is looking to fill that gap with <a href="https://www.apartments.com.au/new-apartments/nova-r-ve-castle-hill-2-garthowen-crescent-castle-hill-nsw-2154">Nova Rêve</a>, a major new mixed-use precinct on the corner of Garthowen Crescent and Old Castle Hill Road, a short walk from Castle Hill Metro Station and Castle Towers.</p>

<p data-end="970" data-start="735">[smartcode_project:default project_id=152737 project_image_fid=377679]</p>

<p data-end="1159" data-start="972">The project will comprise three residential towers alongside a hotel, restaurants, cafes and a skybar, more than 1,600 sqm of ground-floor retail and almost an acre of landscaped gardens.</p>

<p data-end="1357" data-start="1161">It represents the largest project undertaken by Reve Group, the development arm of the Kassis family, which has been building across the Hills District for more than 30 years through Kassis Homes.</p>

<p data-end="3400" data-start="3216">[smartcode_project:default project_id=152737 project_image_fid=377675]</p>

<p data-end="3400" data-start="3216">Nova Rêve also represents a significant step up from the family's first apartment development, Grand Rêve, which was delivered nearby on Garthowen Crescent.</p>

<p data-end="1664" data-start="1517">Grand Rêve introduced larger, house-like apartment layouts and premium inclusions including Wolf and Sub-Zero appliances to the Castle Hill market.</p>

<p data-end="1826" data-start="1666">Nova Rêve takes that approach to a precinct scale, combining the residential component with hospitality, retail and substantial public and resident landscaping.</p>

<p data-end="1826" data-start="1666">[smartcode_project:default project_id=152737 project_image_fid=377685]</p>

<p data-end="2045" data-start="1828">Reve Group Managing Director Sam Kassis said the project reflected the family's three decades of building in the Hills, which has evolved from trophy homes on quarter-acre blocks to larger-scale apartment development.</p>

<p data-end="2269" data-start="2047">"Grand Rêve was our first apartment project here and it showed us what this pocket of Castle Hill could be. Nova Rêve is the refinement of that idea: not just apartments, but a place the whole suburb can use," Kassis said.</p>

<p data-end="2430" data-start="2271">A key part of that approach is the hotel, which has been designed to operate as an amenity for the wider Castle Hill community rather than solely hotel guests.</p>

<p data-end="2606" data-start="2432">It will include restaurants, cafes, skybars and all-day dining, alongside conference and event facilities catering to business functions, community groups and private events.</p>

<p data-end="2724" data-start="2608">At ground level, more than 1,600 sqm of shops and cafes will open onto the surrounding streets and landscaped areas.</p>

<p data-end="2892" data-start="2726">Almost an acre of gardens designed by Land and Form Studios will run through the precinct, incorporating pathways, seating, barbecue areas and children's play spaces.</p>

<p data-end="2892" data-start="2726">[smartcode_project:default project_id=152737 project_image_fid=377680]</p>

<p data-end="3004" data-start="2894">Reve Group's Romio Georges said creating an active ground plane had been central to the planning of Nova Rêve.</p>

<p data-end="3214" data-start="3006">"There are gardens with pathways, barbecues, seating and play areas, shops and cafes opening onto the street, and a hotel with restaurants and a skybar that anyone in Castle Hill can walk into," Georges said.</p>

<p data-end="3400" data-start="3216">The project's elevated position on one of Sydney's highest ridgelines will also provide apartments with outlooks toward the Sydney skyline, surrounding parkland and the Blue Mountains.</p>

<p data-end="3400" data-start="3216">More than 80 per cent of the apartments will occupy corner positions, with Turner responsible for both the architecture and interiors.</p>

<p data-end="3670" data-start="3538">&nbsp;</p>

<p data-end="3670" data-start="3538">[smartcode_project_cta:default project_id=152737]</p>

<h3 data-end="3697" data-section-id="q3n5ak" data-start="3672">&nbsp;</h3>
</main>


Nova Rêve arrives as Reve Group bets on Castle Hill's next growth phase

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


Maréa Residences brings parkside apartments to Coolangatta

<p data-end="535" data-start="324">Melbourne developer PDG has secured Victorian Government approval for its $1.5 billion Southbank development <a href="https://www.apartments.com.au/new-apartments/the-one-1-queens-bridge-street-southbank-vic-3006">The One</a>, clearing the way for the long-dormant riverfront site opposite Crown to finally be developed.</p>

<p data-end="717" data-start="537">The Minister for Planning has approved the project at 1-29 Queens Bridge Street, with the Department of Transport and Planning issuing the planning permit following its assessment.</p>

<p data-end="918" data-start="719">The approval will allow PDG to develop the prominent 5,059 sqm site with a major mixed-use tower comprising premium apartments, including branded residences, a luxury hotel and boutique office space.</p>

<p data-end="1131" data-start="920">PDG acquired the site in late 2024, with its position directly opposite Crown's main entrance and near Melbourne's Arts Precinct making it one of Southbank's most significant remaining development opportunities.</p>

<p data-end="1131" data-start="920"><img alt="PDG" data-entity-type="file" data-entity-uuid="3933013e-6332-4386-b9be-089df05caf17" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.22%E2%80%AFAM.png?VersionId=sITIgBqDL0N3VNSMwWEmF5UA.uvcsRyu" /></p>

<p data-end="1318" data-start="1133">Designed by COX in collaboration with ODO and PDG, the tower's architecture draws on the movement of the Yarra River, with six vertical pleats running the height of the sculpted facade.</p>

<p data-end="1433" data-start="1320">The project will also see the heritage-listed Queens Bridge Hotel restored and incorporated into the development&nbsp;with new hospitality and public uses, including a rooftop venue.</p>

<p data-end="1658" data-start="1591">A significant component of The One will be its residential amenity.</p>

<p data-end="1864" data-start="1660">More than 5,000 sqm of resident facilities will be delivered across a single level, making it one of the largest consolidated residential amenity offerings proposed in an Australian apartment development.</p>

<p data-end="2011" data-start="1866">The planning approval also incorporates a major upgrade of Queensbridge Square, which PDG will deliver in partnership with the City of Melbourne.</p>

<p data-end="2011" data-start="1866"><img alt="PDG" data-entity-type="file" data-entity-uuid="73167fcd-1031-4b6f-a408-a064cfe45ed1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.17%E2%80%AFAM.png?VersionId=Pf1AEWxw6SNmBqR0zQW5lyEze.MtxgFp" /></p>

<p data-end="2191" data-start="2013">The existing square will be revitalised as a new civic and pedestrian space along the Yarra River, strengthening the connection between the project, Southbank and the riverfront.</p>

<p data-end="2365" data-start="2193">PDG Founder and Managing Director Vince Giuliano said the approval represented a major milestone for a site which has remained largely underutilised for more than 15 years.</p>

<p data-end="2473" data-start="2367">“This is the most significant Planning Permit approval Melbourne has seen in recent years,” Giuliano said.</p>

<p data-end="2775" data-start="2475">“For more than 15 years, this site has remained underutilised. This approval enables us to deliver a project that will contribute meaningfully to the revitalisation of Southbank, restore and reactivate an important heritage building, and create a new civic and hospitality destination for Melbourne.”</p>

<p data-end="2943" data-start="2777">The latest approval follows an earlier planning permit issued by the City of Melbourne covering demolition works across part of the site at 9-29 Queens Bridge Street. Those demolition and early works are already underway.</p>

<p data-end="3145" data-start="3001">PDG has also started generating early interest in the residential component from owner-occupiers ahead of a planned public launch in early 2027.</p>


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

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>&nbsp;</p>

<p>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.</p>

<p>Wooloongabba has been popular for apartment developers, particularly since the announcement of the 2032 Summer Olympics games in Brisbane.</p>

<p>While there have been a lot of development applications, it has failed to materialize into real supply.&nbsp;</p>

<p>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>.</p>


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

<html><body>
<p>GUEST OBSERVATION</p>
<p>Australia’s big little economic lie was laid bare on Wednesday.</p>
<p>National accounts figures show that the Australian economy grew <a href="http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/7F1A83D8EEABAF73CA2583B40018551F/%24File/52060_dec%202018.pdf" target="_blank">by just 0.2%</a> in the last quarter of 2018. This disappointing result was below market expectations and official forecasts of 0.6%. It put annual growth for the year at just 2.3%.</p>
<p>But the shocking revelation was that Gross Domestic Product per person (a more relevant measure of living standards) actually slipped in the December quarter by 0.2%, on the back of a fall of 0.1% in the September quarter.</p>
<p>These are the first back-to-back quarters of negative GDP per capita growth in 13 years - since 2006.</p>
<p><strong>We’re going backwards, for the first time in 13 years</strong></p>
<p>The reason this is significant is that the Australian convention around what constitutes a recession is two back-to-back quarters of negative GDP growth.</p>
<p>Since more people in the economy mechanically increases overall GDP, you might think that measuring things on a per-person basis gives a better sense of whether we are better off or worse off.</p>
<p>And you would be right. Why then, do we talk so much about overall GDP?</p>
<p>One answer is that in a lot of advanced economies there isn’t very much population growth, so overall GDP is a good enough measure.</p>
<p><strong>Population growth hides it</strong></p>
<p>The more insidious answer in Australia is that, for a long time, our high population growth, fed by a high immigration rate, has masked a much less rosy picture of how we are doing. And neither side of politics has wanted to admit it.</p>
<p>At 1.6% a year, Australia’s population growth is roughly double the OECD average, which is perhaps why we hear politicians say things like “Australia continues to grow faster than all of the G7 nations except the United States,” as Treasurer Josh Frydenberg did this week.</p>
<p>The good news is that standard economic theory tells us that in the long run, immigration has very little impact on GDP per capita in either direction, unless it drives a shift in the population’s mix of skills.</p>
<p>But in the short term, it depresses GDP per capita because fixed capital such as buildings and machines has to be shared between more workers.</p>
<p>The business lobby doesn’t want us to focus on that because population provides more customers as well as more workers, allowing them to grow without growing domestic market share or exports.</p>
<p>Governments don’t want us to focus on it because adjusting for population growth makes GDP growth look small or, as at present, negative. Also, the tax revenue from the population growth is factored into the official budget forecasts – but the extra social spending needed isn’t always factored in.</p>
<p>Pro tip: watch for population growth as a fudge factor generating a return to surplus in next month’s budget.</p>
<p><strong>There’s a better way of getting at the truth</strong></p>
<p>That said, GDP itself – per capita or not – is not a great measure of the standard of living. That’s why in 2001, the Bureau of Statistics began also reporting <a href="http://www.abs.gov.au/ausstats/abs@.nsf/3d68c56307742d8fca257090002029cd/3fa94a5da5f20eddca256b7400730b78!OpenDocument" target="_blank">real net national disposable income</a>.</p>
<p>It is a measure with advantages over GDP. As the bureau points out, it takes account of changes in the prices of our exports relative to the prices of our imports - our terms of trade. If the prices of our exports were increasing much faster than the prices of our imports (as happened during the mining booms), our standard of living would climb and real net national disposable income would reflect it, where as gross domestic product would not, although it would reflect increased income from increased export volumes.</p>
<p>To get at living standards per person, which is what we are really interested in, the bureau also publishes real net national disposable income per capita.</p>
<p><img src="https://images.theconversation.com/files/262582/original/file-20190307-100799-crlh9b.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></p>
<p>The graph shows that so far the growth rate of real net national disposable income per capita hasn’t changed much, and that it has been negative for far fewer quarters than in the Coalition’s first term in office.</p>
<p>It bounces around with changes in the prices of imports and exports, and is generally climbing less than when export prices were really high.</p>
<p><strong>A year of two halves?</strong></p>
<p>The treasurer painted 2018 as a “year of two halves”.</p>
<p>The first half was great - the annualised GDP growth rate (what it would have been had it continued all year) was a very impressive 3.8%.</p>
<p>The second half was just 1%.</p>
<p>I’m not sure the change was that clear cut. As I wrote <a href="https://theconversation.com/vital-signs-national-accounts-show-past-performance-no-guarantee-of-future-results-102717" target="_blank">last September</a>, there have been troubling signs for some time, despite the solid headline growth.</p>
<p>Household savings have been plummeting, real wage growth has been stagnant, housing prices have been falling in Sydney and Melbourne. Together they put significant pressure on household spending, which accounts for about 60% of GDP.</p>
<p>Those concerns are now mainstream. Good news on export prices has rescued tax receipts for the time being, and will probably also rescue real net national disposable income per capita.</p>
<p>But the fundamentals of the Australian economy are looking somewhat weak. Like the US and other advanced economies, we are living in an era of secular stagnation – a protracted period of much lower growth than we had come to expect.</p>
<p>And until we do something to tackle it, such as a major government investment in physical and social infrastructure, we will continue to face anaemic wage growth, shaky consumer confidence, and mediocre economic growth per person.<img src="https://counter.theconversation.com/content/113026/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;"></p>
<p><em><a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a></em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-australias-sudden-ultra-low-economic-growth-ought-not-to-have-come-as-surprise-113026" target="_blank">original article</a>.</em></p>
</body></html>

rh-YsoTT2xMuQ

Australia’s sudden ultra-low economic growth ought not to have come as surprise: Richard Holden

<html><body><div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">
<p><span>GUEST OBSERVER</span></p>
<p><span>Today’s headline print for Q1 was weak, with real GDP growth of 0.3% q-o-q and 1.7% y-o-y (market had 1.6%). </span></p>
<p><span>But most of the weakness is weather-related and therefore temporary. Cyclone Debbie and wet weather on the East coast weighed on housing construction and exports. </span></p>
<p><span>Timely indicators already suggest a bounce back. </span></p>
<p><span>A clearer read of underlying conditions may be gleaned from surveyed business conditions, which are around decade-highs. And why shouldn’t they be? Corporate profits are up 30% y-o-y and nominal GDP rose by 7.7% y-o-y, its fastest pace in over five years.</span></p>
<p><span> Add to this, Australia just set a new record for developed world growth, with a 26 year boom! If yesterday’s RBA announcement is any guide, the central bank is largely ignoring the volatile, weather-effected GDP numbers and looking at the business and labour market surveys, which still show trend improvement. We see the RBA on hold this year and a hike in early 2018.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/06/08/Screen%20Shot%202017-06-08%20at%207.57.24%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="https://www.urban.com.au/images/2017/06/08/Screen%20Shot%202017-06-08%20at%207.57.24%20AM.png" alt=""></span></p>
<p><span>Facts </span></p>
<p><span>Real GDP rose by 0.3% q-o-q in Q1, to be 1.7% higher y-o-y. </span></p>
<p><span>Household consumption rose 0.5% q-o-q to be 2.3% higher y-o-y. Dwelling investment fell by -4.4% q-o-q and -2.5% y-o-y. Business investment rose 0.7% q-o-q but was down -2.8% y-o-y. Public demand lifted by 0.2% q-o-q and 5.3% y-o-y. Overall, domestic demand (GNE) rose 0.8% q-o-q and 2.4% y-o-y. This was the strongest annual rate of growth in GNE since Q4 2012. </span></p>
<p><span>Net exports were a significant drag on growth in the quarter, with export volumes falling 1.6% q- o-q and imports lifting by 1.6%. Net exports subtracted -0.7ppts from the quarterly growth rate and 0.4ppts from year-ended growth. </span></p>
<p><span>Real gross domestic income rose by 1.7% q-o-q to be 6.5% higher y-o-y. Real net national disposable income per capita rose by 0.8% q-o-q and 4.0% y-o-y. </span></p>
<p><span>Nominal GDP rose by 2.3% q-o-q and 7.7% y-o-y, boosted by a 6.6% q-o-q and 24.8% y-o-y lift in the terms of trade. </span></p>
<p><span>The household saving ratio fell from 5.1% to 4.7%. </span></p>
<p><span>Implications </span></p>
<p><span>Australia’s sets 26-year growth record! That could have been the headline for this piece. Having just clicked past 103 quarters of continuous GDP growth without a technical recession, Australia has just overtaken the Netherlands to have the longest boom of any developed economy. For those interested, the Dutch economy had 102 quarters of continuous expansion between 1982 and the 2008 Global Financial Crisis (although there is some debate about whether the Dutch had a technical recession in 2003). Whatever the technicalities, the bottom line is that Australia has now had the longest boom (Chart 1). </span></p>
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<p><span>Instead, the market is focused on the weak quarterly print, which has been largely driven by the weather! Hence our title. </span></p>
<p><span>Today’s numbers showed that real GDP growth slowed to 0.3% in Q1, from 1.1% in Q4 2016. Of course, the 1.1% was a bit overstated, as it was a bounce back from the surprising -0.4% fall in Q3 2016. As the RBA stated yesterday, the slowdown in GDP growth partly reflects the ‘quarter-to-quarter variation in the growth figures’. </span></p>
<p><span>This is true, but unusual weather also played a role. Cyclone Debbie and very wet weather on the east coast appear to have weighed on housing construction, which fell by -4.4% q-o-q, and on exports, which were down -1.6% q-o-q (Chart 2 and 3). Retail spending fell sharply in Queensland in March. Part of this is likely to continue into Q2, as coal exports fell in April, although there are already signs of a bounce back in retail sales in April and coal exports in May. </span></p>
<p><span>The underlying trends for real GDP are more positive. After a number of years of mining investment weighing on overall investment, the business investment numbers are now starting to rise. The decline in mining investment is almost done and non-mining business investment is showing a modest lift in momentum. For more on our views on this see: </span><span>'Downunder Digest: Australia's next investment upswing', 21 March 2017</span><span>.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/06/08/Screen%20Shot%202017-06-08%20at%207.59.59%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="https://www.urban.com.au/images/2017/06/08/Screen%20Shot%202017-06-08%20at%207.59.59%20AM.png" alt=""></span></p>
<p> </p>
<p><span>Although the volume numbers have been volatile and knocked around by the weather the income numbers in the GDP figures were unquestionably strong. Corporate profits rose by a very strong 30% y-o- y, supported by the rise in commodity prices over the previous year. This has lifted nominal GDP to its fastest rate of growth in over five years at 7.7% y-o-y (Chart 4). The lift in corporate profits helps to explain why business investment is starting to pick up. The rise in profits is also extending a bit beyond the mining industry, with profits in the finance and insurance and professional services industries also lifting. </span></p>
<p><span>The rise in corporate profits helps to explain why surveyed business conditions have continued to improve and most of the labour market measures are trending higher. The collection of Australian Industry Group surveys, which are now published for May, suggest business conditions were still at around decade-high levels in May (Chart 5). </span></p>
<p><span>The key challenge remains that, although corporate profits and nominal GDP have picked up, largely driven by the rise in commodity prices, this has yet to show up in wages growth. Compensation of employees rose in Q1, following a fall in Q4 2016, but is still running at a weak 1.5% y-o-y. At this stage there is little evidence of the boost to national incomes is flowing through to households (Chart 6).</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/06/08/Screen%20Shot%202017-06-08%20at%208.00.50%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="https://www.urban.com.au/images/2017/06/08/Screen%20Shot%202017-06-08%20at%208.00.50%20AM.png" alt=""></span></p>
<p> </p>
<p><span>However, as the chart shows, history suggests that it will. Yesterday’s decision to lift the minimum wage by more than in previous rounds may very well be the first sign of this starting to happen. For more the wages outlook see: </span><span>'Downunder Digest: Show me the money', 20 April 2017</span><span>. </span></p>
<p><span>We expect growth to pick up in the second half, following the weather-effected weakness in the first half. We expect this to push the unemployment rate lower and to drive a modest rise in wages growth in the second half. We expect the RBA to be on hold this year and to lift its cash rate in early 2018. </span></p>
<p><span><em><a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC. </em></span></p>
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jchancellor-FAypfDUnLy

Blame the weather and then ignore it: HSBC's Paul Bloxham on the GDP

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<p>After posting some healthy looking results over recent quarters, figures released today show Australia’s economy contracted during the September 2016 quarter marking the first quarterly decline in Gross Domestic Product (GDP) since 2011 and only the third quarterly decline in the last decade.</p>
<p>A decline in GDP was not unexpected, however the magnitude of the decline makes the result worthy of closer scrutiny, said Geordan Murray, economist at the Housing Industry Association.</p>
<p>“The value of investment in residential building declined by 1.4 percent in the quarter, however it remains 7.2 percent higher than in the September quarter a year earlier.</p>
<p>In the context of the residential building cycle reaching a record high, the decline in investment in the sector and the role that it played in the overall contraction in GDP is likely to be a point of discussion,” he said.</p>
<p>The 1.4 percent decline in aggregate investment in residential building was the result of a 1.6 percent decline in work done building dwellings, and a 1.0 percent reduction in renovations activity.</p>
<p>“Quarter by quarter fluctuations are expected and poor weather has been blamed for the weak result for the construction sector in the September 2016 quarter.</p>
<p>The latest quarterly decline is not likely to herald the turning point for residential investment just yet, he noted.</p>
<p>There is still a significant volume of work that remains to be done on projects at various stages of construction which will see the level of investment remain at a historically high level over the next few quarters.”</p>
<p>“With GDP contracting by 0.5 percent in the September quarter it will be tempting to focus on the negative headline result.</p>
<p>It is worth noting that the most significant factor detracting from growth was a reduction in capital investment by the various levels of government.</p>
<p>A reduction in defence expenditure was a significant item, while there was also a significant reduction in capital investment by state and local governments,”</p>
<p>“Looking at private sector investment, results continue to be mixed. On the positive side, investment in machinery and equipment increased and the agricultural sector made a strong contribution to growth.</p>
<p>However, this was outweighed by quite a significant drop in new non-residential building along with the modest reduction in residential building investment.</p>
<p>In addition, the widely anticipated contraction in mining related engineering investment continues to weigh on growth,” concluded Geordan Murray.</p>
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j.ballantyne1990-6AQqhLzZaK

Housing unexpectedly bites as GDP declines

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<h3 class="post-title entry-title"> </h3>
<div id="post-body-2781265956150443664" class="post-body entry-content">
<div>Australia's GDP increased to $1.67 trillion in financial year 2016, measured in seasonally adjusted Chain Volume Measures terms, now tracking at just above $420 billion per quarter.</div>
<div> </div>
<div>Following on from yesterday's post, a quick look here at industry gross value added (GVA).</div>
<div> </div>
<div>Having accounted for just over 5 per cent of industry GVA three decades ago, mining's share has swelled to 8.9 percent as export volumes begin to ramp up.</div>
<div> </div>
<div>Finance and insurance also now accounts for 8.9 per cent of industry GVA, up from just 4.9 per cent in 1986.</div>
<div> </div>
<div>You can click on the chart to expand it (or use the touch screen, if you have one of those, of course).</div>
<div> </div>
<div><a href="/images/2016/09/28/GVA.jpg" target="_blank">Click to enlarge</a></div>
<br><div class="separator"><img src="/images/2016/09/28/GVA.jpg" alt=""></div>
<br><div class="separator"> </div>
<div>On the other hand, manufacturing is shrinking as a share of the pie, declining from a share of 11.1 percent at the beginning of this chart to just 5.8 percent in 2016.</div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Construction wind-down</span></strong></div>
<div> </div>
<div>The latest figures show that the contribution of construction to GDP has remained solid at 7.6 per cent, tracking at around $32 billion per quarter.</div>
<div> </div>
<div>A decade ago construction was contributing only $13 to $14 billion per quarter. </div>
<div> </div>
<div>This suggests that the planned 'hand-off' from resources to residential construction was generally a success between 2012 and 2016. </div>
<div> </div>
<div>However, this does also mean that as residential construction eventually winds down there will be quite a hole in domestic demand to be plugged by something other than rising mining export volumes.</div>
<div> </div>
<div>Given the respective skill-sets of all those construction workers, tradies, and project managers, the answer should be: infrastructure and non-residential construction, as I looked at in a bit more detail here. </div>
<div> </div>
<div>Indeed, the unprecedented stamp duty windfall from Sydney's property boom is already funding a range of infrastructure projects in Sydney and New South Wales. </div>
<div> </div>
<div>But what about the gaping gulf left behind in the resources regions? </div>
<div> </div>
<div>Troubling, and this may be leading to an exodus of regional workers. </div>
<div> </div>
<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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pwargent-M4siyDbqQY

When construction winds down: Pete Wargent

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<div id="post-body-2934597644349298689" class="post-body entry-content">
<div class="separator">Some years ago there were doomsday predictions of a property correction in Australia since dwelling prices had reached three times the value of our Gross Domestic Product (the exact relevance of the three times figure was never adequately explained).</div>
<div class="separator"> </div>
<div class="separator">Today, the ratio is just over 3.6 times, having ticked down slightly over the past six months of publicly available official figures.</div>
<div class="separator"> </div>
<div class="separator">Is there a link between the two measures? Kind of, but it's not very strong.</div>
<div class="separator"> </div>
<div class="separator">In fact, as a predictor of property prices the ratio has been useless in recent years. Actually, no, it's been worse than useless - it has been a contra-indicator!</div>
<div class="separator"> </div>
<div class="separator">One problem with GDP is that it's historic in nature, so at best it tells you what was happening in the economy months ago - thus as an indicator of future outcomes it's necessarily all that useful.</div>
<div class="separator"> </div>
<div class="separator">More pertinently this ratio doesn't make a lot of logical sense since it compares a <strong>stock</strong> value at a fixed point in time with a <strong>flow</strong>, being the value of goods and services produced over a specified period of time (in the example in the chart below, one year).   </div>
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<div class="separator"><a href="/images/2016/07/06/STOCK.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/STOCK.jpg" alt=""></div>
<br><div>Furthermore, some types of property in thinner markets fare much better in times of boom, and worse in times of bust. And some types of property in some inner suburban locations tend to outperform the averages over time, while properties is lower demand generally fail to keep pace with the averages.</div>
<div> </div>
<div class="separator"><strong><span style="text-decoration: underline;">Key national accounts aggregates</span></strong></div>
<div class="separator"> </div>
<div class="separator">In today's electronically connected world, hordes have wanted to be the person to 'call' the next Australian recession. But the economy has proved to be surprisingly robust, with the annualised rate of GDP growth for the past six months accelerating to 3.6 per cent. </div>
<div class="separator"> </div>
<div class="separator">The riposte has been that GDP is the "wrong" measure - we should ignore GDP and look at national income. </div>
<div class="separator"> </div>
<div class="separator">It is indeed true that real (i.e. adjusted for inflation) gross national income has stalled, but then again Australia's commodity prices could not and did not grow to the sky, so this isn't necessarily that surprising. </div>
<div class="separator"> </div>
<div class="separator">Another way to look at this is that national income has more than doubled over the past twenty years, even after accounting for inflation.</div>
<div class="separator"> </div>
<div class="separator"><a href="/images/2016/07/06/GDP.jpg" target="_blank">Click to enlarge</a></div>
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<div class="separator"><img src="/images/2016/07/06/GDP.jpg" alt=""></div>
<div class="separator"> </div>
<div class="separator">Moreover, if GDP is an unreliable measure of the performance of the economy, how can it be a good measure of dwelling prices? Can't have it both ways! </div>
<div class="separator"> </div>
<div class="separator"><strong><span style="text-decoration: underline;">National accounts</span></strong></div>
<div class="separator"> </div>
<div class="separator">The national accounts provide us with a range of figures relating to the property markets, but as implied by the name of the data release the figures are national and backward-looking in nature, and therefore don't really tell us much of interest about what sub-regional property markets are up to or will be up to.</div>
<div class="separator"> </div>
<div class="separator">As noted, the national accounts lag a bit, but broadly home owners owe about $1 trillion in mortgage debt, and investors about $550 billion. What is not so well shown by these figures is that mortgage buffers and offset accounts are also at record high levels. </div>
<div class="separator"> </div>
<div class="separator"><a href="/images/2016/07/06/DEBT1.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/DEBT1.jpg" alt=""></div>
<br><div>With dwelling price growth having outpaced the growth in household debt, gearing ratios have declined in recent years.</div>
<br><div class="separator"><a href="/images/2016/07/06/DEBT2.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/DEBT2.jpg" alt=""></div>
<br><div class="separator">None of which tells of much of any predictive value. We can all think of housing markets in Australia that are overvalued; but equally we can all name others where prices are getting walloped or have already crashed. </div>
<div class="separator"> </div>
<div class="separator">If there is one ratio from the national accounts which is useful in predicting where to next for dwelling prices - and I'm not saying that there necessarily is - it's the ratio of housing interest payable to income. </div>
<div class="separator"> </div>
<div class="separator">The actual quoted percentage figure is skewed lower since so many households have no mortgage debt at all, but has declined from a peak of 16.4 per cent in June 2008 to 9.7 per cent by December 2015. </div>
<div class="separator"> </div>
<div class="separator">On this measure, mortgage repayments are more than 40 per cent cheaper than they were at their 2008 peak.</div>
<br><div class="separator"><a href="/images/2016/07/06/INTEREST%20PAYABLE.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/INTEREST%20PAYABLE.jpg" alt=""></div>
<div class="separator"> </div>
<div class="separator"><strong><span style="text-decoration: underline;">Rates heading lower?</span></strong></div>
<div class="separator"> </div>
<div class="separator">It would be fair to say that if mortgage rates head back to where they were at their most recent peak of about 8 to 9 per cent, then many of Australia's housing markets are heading into correction territory. </div>
<div class="separator"> </div>
<div class="separator">It's an interesting bet if you want to take it on. But money markets are begging to differ, with yields grinding out new lows in anticipation of possible Brexit turmoil. </div>
<div class="separator"> </div>
<div class="separator">Yesterday Australia's 10 year government bond yield fell to its lowest ever level at well below 2 per cent.</div>
<br><div class="separator"><a href="/images/2016/07/06/RBA.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/07/06/RBA.jpg" alt=""></div>
<br><div>Meanwhile, OIS rates are on a seek and destroy mission to crunch out new record lows, and they are winning that particular battle. We are now just one benign inflation print from seeing a new record low cash rate in August.</div>
<br><a href="/images/2016/07/06/OIS.jpg" target="_blank">Click to enlarge</a>
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<div class="post-body entry-content">
<img src="/images/2016/07/06/OIS.jpg" alt=""><br><br><strong><span style="text-decoration: underline;">The wrap</span></strong><br><br><div>GDP is a useful measure of the strength or otherwise of the economy. And over the long term stronger economic growth may be reflected in higher dwelling prices - but not necessarily so, since there are so many other contributory factors, such as tax settings or the supply of new dwellings, for example. </div>
<div> </div>
<div>It's true that property prices can fall during recessions. But then again they can fall when GDP is positive such as they did in 2011 and early 2012.<br><br>And what about China, where real GDP growth has slowed from above 13 per cent in 2007 to just 6.7 per cent (if you can call 6.7 per cent slow), yet house prices in Shenzhen have skyrocketed by more than 50 per cent within the past year?<br><br>Obviously there are many other factors at play than purely economic growth.  And if there is a correlation between GDP and dwelling stock valuations, it's a tenuous one. </div>
<div> </div>
</div>
<div class="post-footer"> 
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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The GDP myth and doomsday property predictions: Pete Wargent

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<p>GUEST OBSERVER</p>
<p>Advanced economies have essentially been in a low growth, low inflation and low interest rate nexus since 2008. There have been a few oscillations along the way, but the trend has been consistent throughout.</p>
<p>The Australian economy was able to decouple from the “3 lows” for much of that period due to a mining investment boom that left the economy with little spare capacity. As a result, growth, inflation and interest rates were significantly higher in Australia than in the G7 economies. But that has since changed and Australia has transitioned to the low inflation and low interest rate world, says the latest note from CBA Economics.</p>
<p><a href="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.12.07%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.12.07%20AM.png" alt=""></p>
<p>While GDP growth in Australia has been solid, if not spectacular, domestic demand growth has been soft. And while the unemployment rate has trended down recently, it is still stuck above the level associated with full employment.</p>
<p><a href="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.13.36%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.13.36%20AM.png" alt=""></p>
<p>In other words, there is slack in the Australian economy and this has led to record low wages growth and underlying inflation now running below the RBA’s 2-3 percent pa target band. The RBA has responded by cutting its policy rate to a record low of 1¾ percent. The latest rate cut can be put down to a change in the RBA’s assessment on the outlook for inflation because the Bank significantly downgraded its inflation forecasts in the May Statement on Monetary Policy (SMP). As a result, we expect further rate cuts to come in 2016 as the central bank seeks to further stimulate the economy. We see the RBA cutting to 1¼%.</p>
<p>This note explores the issues around spare capacity, wages and inflation in Australia and the implications for monetary policy.</p>
<p><a href="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.14.36%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.14.36%20AM.png" alt=""></p>
<p><strong>Spare capacity and the labour market</strong></p>
<p>Labour market outcomes provide key indicators of spare capacity in an economy. In particular, the unemployment and underemployment rates are measures that show how far an economy is operating below its potential.</p>
<p>The unemployment rate that is commensurate with an economy producing around its potential output is generally associated with stable inflation. It is referred to as the ‘non-accelerating inflation rate of unemployment’ (NAIRU). The most recent OECD estimates of the NAIRU in Australia put it at 5.3 percent and Treasury estimates it to be 5.0 percent. Whichever way you slice it, the unemployment rate in Australia has been above the NAIRU for the past three years even though it is low by historic standards.</p>
<p>The underemployment rate, however, remains near its highest level on record. This indicates that the Australian economy is operating below its capacity and an output gap has opened up. This has had implications for wages and inflation.</p>
<p>While the output gap in the US has been closing (and core inflation has lifted a little), the reverse has happened in Australia over the past two years. An output gap has opened up primarily due to the end of the labour-intensive mining investment boom and resultant impact on jobs and domestic demand. GDP growth has been solid over that period, but domestic demand growth has been soft.</p>
<p>Decent GDP growth and weak domestic demand growth is reconciled by the strong contribution to growth from net exports. The big lift in resource export volumes is great for headline GDP growth. But mining production is not labour intensive like mining investment. As such, productivity in the resources sector has lifted, but headcount has fallen.</p>
<p>The underemployment rate tends to fly under the radar, but it’s a very usual measure of labour market slack. It provides a gauge of the proportion of people who are employed people but whose labour is not fully utilised. It is near its highest level on record. The sum of the unemployment rate and the underemployment rate produces the underutilisation rate which is the broadest measure of spare capacity in the labour market – it is high and presently sits above the level hit during the Global Financial Crisis.</p>
<p>The lift in underutilisation is also captured through the step down in average hours worked by full-time workers from late-2011. Average hours worked of full-time workers remains well down on its late-2011 peak.</p>
<p><strong>Implications for wages</strong></p>
<p>The lift in the unemployment rate and associated increase in spare capacity in the labour market has contributed to a slowdown in wages growth (both real and nominal). Since mid-2010, wages growth has eased and is currently running at its lowest annual rate since the 1990s recession.</p>
<p>The decline in wages growth has been broad-based across the private and public sectors, though the public sector slowdown has not been as pronounced. Most industries have experienced a slowdown in wages growth and the Wage Price Index is growing at a flaccid 2.1 percent pa (as at QI 2016).</p>
<p>The picture appears even softer when looking at Average Weekly Earnings (AWEs) which are running at just 1.5 percent pa. The WPI measures changes in wages across a range of industries (just like the CPI picks up price changes for a basket of goods), but it doesn’t pick up compositional changes in the labour market. AWEs, however, do. Growth in AWEs has declined by more than growth in the WPI because of the shift in jobs away from higher paying mining-related jobs towards lower paid services sector jobs.</p>
<p>The slowdown in wages growth due to a lift in spare capacity and increase in the unemployment rate was expected. But the historical relationship between wages growth and the unemployment rate suggests that wages growth has slowed by a lot more than would have usually been expected. We think that there are a few reasons for this. First, a more flexible labour force enables firms’ greater scope to limit wages growth due to slackness in the labour market. It may be that workers are willing to take lower wages growth for job security.</p>
<p>Second, the underutilisation rate has risen by more than the increase in the unemployment rate meaning that the change in the unemployment rate alone is not fully capturing the lift in spare capacity in the labour market. Third, job security fears have risen substantially over the past few years. Employees are less likely to look to negotiate a pay rise while job security fears are elevated. Finally, the terms-of-trade has fallen significantly which means that nominal income growth has supressed across the economy. This has effectively crushed wages growth by more than would have otherwise been the case.</p>
<p><a href="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.15.38%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.15.38%20AM.png" alt=""></p>
<p><strong>Implications for inflation</strong></p>
<p>Headline inflation has slowed considerably in Australia and has been running below the RBA’s target band for the past six consecutive quarters. Underlying inflation has also slowed and the most recent print (QI) showed it was running at just 1.5 percent pa.</p>
<p>The impact of declining wages growth as a result of a lift in spare capacity has put downward pressure on non-tradables (i.e domestic) inflation. At the same time, tradables inflation has slowed primarily because of a big fall in the price of oil. This muted the impact that the lower AUD was expected to have on tradables inflation. The relationship between non-tradables inflation and wages growth is depicted in the chart opposite. As spare capacity in the labour market has lifted, wages growth has slowed and dragged down the rate of domestic inflation with it.</p>
<p>We expect domestic inflation pressures to remain weak primarily because spare capacity in the labour market will keep a lid on wages costs. Wages growth is unlikely to lift until the unemployment rate gets closer to the NAIRU. And we are some way off that. In fact, falling inflation expectations in Australia points to some further weakness in wages growth.</p>
<p>The NAB survey of businesses suggests that there has been a sharp decline in long run inflation expectations. Almost 70 percent of Australian businesses surveyed expect inflation to average less than 3 percent over the long run, more than double the proportion before 2012. Business long run expectations for inflation has been a good predictor for wage inflation and suggests earnings growth may slow further in 2016 (see chart opposite).</p>
<p>There are other forces, too, that are weighing on inflation. Rental growth, for example, has slowed considerably because dwelling supply has lifted, particularly in the apartment space. With further supply to hit the market over the next 18 months, rent inflation should remain weak. So there aren’t any forces on the near term horizon that point to a lift in inflation. Eventually the large fall in oil prices will ‘wash through’ the quarterly data prints. But even so, we expect the pulse of headline and underlying inflation to remain soft.</p>
<p><a href="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.16.53%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/06/21/Screen%20Shot%202016-06-21%20at%2011.16.53%20AM.png" alt=""></p>
<p><strong>Implications for monetary policy</strong></p>
<p>The degree of spare capacity in the economy is an important consideration for monetary policy because it is the primary driver of domestic inflation. The RBA’s rate cut in May came purely down to the Bank’s concerns about entrenched low inflation and disinflation risks. Growth and labour market trends didn’t signal that more rate cuts were forthcoming. Indeed, falling inflation against an unemployment rate that is trending lower is rare.</p>
<p>The Minutes of the May Board Meeting suggest that the decision to cut rates was a finely balanced one. Specifically, “members discussed the merits of adjusting policy at this meeting or awaiting further information before acting”.</p>
<p>So the 50/50 market pricing going into the meeting was probably right. But the May SMP, published a few days after the rate cut, suggests that further policy easing is coming. The Bank made material downgrades to its inflation forecasts in the SMP, shaving ½ppt off its near term underlying and headline inflation forecasts. The RBA now expects both underlying and headline inflation to be 1-2 percent pa over 2016 (below the Bank’s target band). This points to further rate cuts, in our view.</p>
<p>Since the May interest rate cut a number of prominent economists, policymakers and commentators have come out questioning the RBA’s latest rate cut. Indeed, former RBA Governor Ian Macfarlane stated that, “the inflation targeting approach says that if inflation forecasts are below target, we should run an easy monetary policy – we already have that.</p>
<p>It doesn't say that each time we receive an inflation statistic showing it is below target, we have to cut interest rates." And former RBA Governor Bernie Fraser stated that, “I was a bit surprised by the rate cut on budget day because of the ambiguity that such a move is likely to create in the public mind. I wouldn't myself have been concerned about a short period of under 2 per cent inflation – not in the slightest.”</p>
<p>These comments are interesting food for thought. Indeed, we have our own view on whether the RBA should have eased policy in May. But for us market economists, what primarily matters is calling what the RBA is likely to do next and not what we think they should do. As such, we expect further monetary policy easing and have pencilled in two more rate cuts that would take the cash rate to just 1¼ percent. Current market pricing is indicating a terminal cash rate of 1.42 percent.</p>
<p>As always, the timing of picking rate moves is pretty tough. But we favour August and November as these dates follow CPI updates. In our view, all rate meetings over the near term are “live” and activity data will play a role in shaping market expectations and pricing over coming months.</p>
<p><em><span>Gareth Aird is e</span><span>conomist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905" target="_blank">here</a>.</span></em></p>
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Why spare capacity is driving wages growth, inflation & rates down: CBA's Gareth Aird 

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<p>GUEST OBSERVER</p>
<p>The minutes of the March monetary policy meeting of the Board of the RBA provided no real surprises. When we assessed the Governor’s statement following the March meeting we pointed out that the key sentence “Members noted that continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand” had been changed from the February statement to include the word “would” instead of “may”. We interpreted that as a clear strengthening of the easing bias.</p>
<p>That decision may have been prompted by a concern that the December quarter GDP report that was set to be released the following day was going to show a significant slowdown in growth. As it turned out the report showed growth in 2015 to be 3%, comfortably above trend growth of 2.75%. In the minutes it is noted that it was reported to the Board that based on data available “growth appeared to have been slightly below average in the December quarter and over 2015 as a whole”. Clearly this assessment proved to be more cautious than turned out to be the final result. It is reasonable to argue that knowledge of the stronger GDP may have allowed the Board to retain its earlier more modest easing bias.</p>
<p>Of course we were also interested in the assessment of the surprise rise in the unemployment rate from 5.8% to 6.0% in January. The minutes while recognising that development point out that “leading indicators of employment had increased further and were consistent with employment growth in the months ahead”.</p>
<p>The minutes also clarified the relevance of the Capex survey. While the particularly weak Capex survey pointed out further but not surprising large falls in mining investment the picture around non-mining investment from the survey seemed to be overly pessimistic. The minutes point out that roughly half of non-mining investment is not covered by the Capex survey and that it had on occasions proved to be unreliable. Further boosting the view around business is the observation that surveys continue to point to conditions and capacity utilisation remaining above average levels.</p>
<p>The minutes have qualified the assessment that low wage growth points to some spare capacity in the labour market. They speculate that weak wages growth may be due to increasing globalisation. </p>
<p>There is a long discussion on China, particularly around longer run economic performance and risks to growth. The discussion covers potential financial problems in China but concludes that China’s low household debt and low level of foreign currency debt gave it much more protection from a crisis than in other emerging economies.</p>
<p>At the time of the last meeting the AUD was around USD0.715, little changed from the February meeting. With the currency subsequently rising to USD0.75 there may have been some temptation to use this document to signal any discomfort. This has not happened and the term “responded to the evolving economic outlook” has been maintained.</p>
<p>Conclusion</p>
<p>The minutes provide some insight into expectations around GDP; reaction to the surprise rise in the unemployment rate in January; and the weak Capex report. The ‘spin’ on all of these developments indicates a Bank that is comfortably on hold. However clearly considerable attention is being paid by the Bank to developments in China and sudden adverse developments in that region would undoubtedly prompt consideration for policy change.</p>
<p>We will have to await new communication from the Bank to assess its degree of unrest around the recent sharp jump in the AUD.</p>
<p>Westpac continues to expect that the Bank will remain on hold for the remainder of the course of 2016.</p>
<p><em>Bill Evans is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></p>
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No surprises in RBA minutes; positive spin on key data points to rates on hold: Westpac's Bill Evans

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<p><span>GUEST OBSERVER</span></p>
<p><span>Last week's GDP print was a strong result, considering the global backdrop. </span></p>
<p><span>Australia's economy grew at an above-trend pace of 3.0% y-o-y over 2015, despite falling commodity prices and China's slowdown. </span></p>
<p><span>Monetary policy deserves much of the credit. Cuts to interest rates over the past four years and a significant fall in the AUD have been the key supports for growth.</span></p>
<p><span> Low rates have lifted housing prices and construction, which is feeding through to a positive wealth effect on consumer spending. </span></p>
<p><span>The lower AUD is supporting strong export growth, particularly of tourism and education services to Asia. At the same time, inflation is low and set to remain so. Despite these positive growth stories, the RBA may still need to cut further to keep inflation on target. </span></p>
<p><span>We have long been optimists on the Australian growth outlook. A key part of this story has been our belief that monetary policy is powerful and has been well managed. </span></p>
<p><span>In short, when the mining boom was at its peak, in 2011, monetary policy settings were very tight, which held back the non- mining sectors and kept inflation contained. This meant that there was then significant scope to loosen settings when the mining boom ended, thereby rebalancing and lifting growth. The RBA cut its cash rate from a peak of 4.75% in 2011 to 2.00% and the AUD has fallen from US105 cents to under US75 cents. </span></p>
<p><span>The cut in interest rates supported a 30% rise in housing prices since mid-2012. </span></p>
<p><span>The combination of rising housing prices and low interest rates drove new building approvals to record highs in H2 2015. Last week's GDP numbers provided evidence that rising housing prices are also delivering a positive wealth effect, with the household saving rate falling from 9.1% to 7.6% over the past year. Although income growth has slowed, due to slower wages growth, rising housing prices and greater certainty about employment prospects are seeing households choose to spend more of their disposable income, particularly on services. The pick-up in the service sector is, in turn, driving a pick-up in employment. </span></p>
<p><span>The lower AUD has also supported growth by improving Australia's competitiveness. In particular, and perhaps surprisingly to some observers, this is supporting a strong rise in net services exports. Inbound tourism and international student enrolments have picked up strongly, particularly from Asia. At the same time, Australians are also choosing to take fewer international trips. </span></p>
<p><span>Net services exports have gone from being a drag on the economy of around 0.75ppts of GDP, four years ago, when the currency was high, to contributing around 0.5ppts to GDP growth over the past year. Without this swing, GDP growth of 3.0% in Q4 would be under 2.0%. Importantly, the lift in net services exports has nothing to do with the housing boom. So the rebalancing of growth is not just a shift from mining to housing. Services exports are being driven by Asia's increasing demand for tourism and international education services, helped along by the lower AUD. </span></p>
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<p>This great rebalancing act provides strong evidence that Australian monetary policy works.</p>
<p>However, the rebalancing story is not over yet and nor is the role of monetary policy. Although local growth has been solid in recent years, it has not been rapid enough to absorb all of the available spare capacity. The transition from mining- to non-mining-led growth has left GDP growth at a below-trend average of 2.4% over the past three years (even with the 3.0% y-o-y print in Q4).</p>
<p>Although the unemployment rate has fallen from 6.3% to 6.0% over the past year, it is still well above its full employment level of 5.25-5.5% and has been for four years. As a result, wages growth is weak. Indeed, even the state with the strongest economic conditions, New South Wales, is yet to see a pick-up in wage growth. Combined with low global inflation, this has meant that underlying inflation is now at the bottom edge of the RBA's 2-3% target band.</p>
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<p><span>A number of near term challenges to growth also remain. Mining investment still has further to fall. Global commodity prices also have declined further since last year and over-supply in many markets is set to keep them low. Global growth is below trend and the Asian economies are being held back by weak global trade. </span></p>
<p><span>Australia's housing boom is also cooling, much as it should, given the already substantial run-up in housing prices and residential construction. However, the end of the housing boom means it is unlikely that household consumption will continue at the same strong pace observed late last year. </span></p>
<p><span>The other challenge is the AUD. As we described above, the AUD has been a key driver of the rebalancing act and a key support for growth recently. But low global inflation, further expected rate cuts from the ECB and Bank of Japan and the markets’ doubts about whether the US Federal Reserve will hike again this year, have meant that speculative positions have turned long on the Australian dollar. </span></p>
<p><span>The currency has climbed from its low point of US69 cents in January to now trading around US74 cents. A higher Australian dollar is unhelpful for the rebalancing story and likely to put further downward pressure on already low underlying inflation. </span></p>
<p><span>So although the growth performance is impressive, given the global backdrop, the question is: will there be enough growth to keep inflation on target? At the same time, local financial conditions have been tightening, not loosening, as the AUD has moved higher and the cash rate has been steady while inflation has fallen (meaning real interest rates have increased). Effective mortgage and business lending rates have also been lifted in recent months, despite a steady RBA cash rate, as a result of regulatory changes and higher global funding costs. </span></p>
<p><span>Just to keep the same effective financial conditions settings as delivered the strong H2 GDP growth performance the RBA may have to cut further. Thankfully, with a cash rate at 2.00% and inflation low the RBA has scope to cut further to keep Australia's great rebalancing act underway. Our central case sees another 25bp cut from the RBA around mid-year (Q2). </span></p>
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jonathanchancellor-7SQnKwU6yx

Loose monetary policy is rebalancing growth: HSBC's Paul Bloxham

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<p>This month brought more evidence that the rebalancing act is continuing. Q1 GDP confirmed that household consumption is growing solidly, dwelling investment is in a strong upswing and resource export volumes are ramping up, as new capacity comes on line. The lift in these areas has more than offset the drag from falling mining and public investment, leaving solid GDP growth in the first quarter (0.9% q-o-q), although it was still below trend over the year (2.3% y-o-y).</p>
<p>More timely indicators provided signs that the RBA's February and May rate cuts have been feeding through to a further lift in the housing market. Housing prices rose by 9.8% y-o-y in June and building approvals reached a new record high in May. Business surveys showed improving conditions and confidence in May, which could reflect the impact of this year's rate cuts as well as the government's more pro-growth budget. On a less positive side, retail sales were quite weak in April.</p>
<p>The clearest sign of improving conditions has been in the labour market, with jobs growth running at a three-and-a-half-year high of 2.0% y-o-y in May. At this rate, jobs growth has been sufficient to keep the unemployment rate steady at 6.0% to 6.2% in recent months. The services sectors are leading job creation as mining employment declines. At the same time, however, wages growth is at a multi-decade low. This weak wages growth reflects the build- up of spare capacity in the labour market, but may also explain why jobs growth is lifting, as lower wages encourage greater hiring.</p>
<p>The lift in activity and steadying of the unemployment rate are expected to keep the RBA on hold this month. If these improving trends continue, as is our central case, we expect that the RBA will not need to deliver further cuts in this easing phase. However, low wages growth means that inflation is likely to remain benign, which is likely to leave the RBA with an 'easing bias'. The central bank is expected to continue to express concern about strong housing price growth, particularly in Sydney, and the still high level of the AUD.</p>
<p><a href="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.12.40%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.12.40%20AM.png" alt="" width="709" height="308"></p>
<p>Jobs growth lifting, but wage inflation is low</p>
<p><span style="line-height: 1.3em;">Most of the activity indicators published this month showed positive results. In particular, there are increasingly convincing signs that the labour market is improving. The monthly labour force survey showed that 234k jobs have been created over the past year, implying jobs growth of 2.0% y-o-y, which has been enough to get the unemployment rate to stabilise (Chart 1 and 2). The quarterly labour market survey confirmed that although mining jobs are being cut, this is being more than offset by job creation in the services sectors. Business surveys also showed an improvement in conditions and confidence, which is likely to reflect the more pro-growth Federal budget delivered in May as well as the impact of the RBA's 50bp of rate cuts in the first half (Chart 3).</span><br><br><span style="line-height: 1.3em;">Although timely indicators suggest a lift in domestic demand and jobs growth, wages growth is at its lowest level in at least two decades (Chart 4). To some degree, this is just part of the needed adjustment to get a lift in jobs growth. However, lower wages growth should also be expected to put downward pressure on inflation, leaving the RBA with the option of cutting rates further, or at least keeping rates on hold for longer.</span></p>
<p><a href="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.15.19%20AM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></p>
<p><span style="line-height: 1.3em;"><img src="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.15.19%20AM.png" alt="" width="790" height="370"></span></p>
<p> </p>
<p><a href="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.16.16%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.16.16%20AM.png" alt="" width="864" height="397"></p>
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<p><span>In 'wait and watch' mode </span></p>
<span style="line-height: 1.3em;">The combination of having already delivered 50bp of cuts in H1 and the more positive domestic numbers are expected to keep the RBA firmly on hold next week. We expect the RBA to be in 'wait and watch' mode, as it seeks more information about the full impact of the cuts it has already delivered this year.</span><br><span style="line-height: 1.3em;">We expect the central bank to also express continued concern over the exuberance of the housing markets in Sydney and Melbourne, where price growth is still rapid (Chart 5). While the prudential regulator has been gradually tightening micro-prudential settings, the Sydney market and parts of Melbourne are still showing excessive exuberance. On the margin, this concern is likely to keep the RBA on hold.</span>
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<br><span style="line-height: 1.3em;">Working in the other direction, the RBA is likely to remain concerned about the still high level of the AUD. On our assessment, the central bank would be more comfortable with the AUD at around 68-70 USD cents (it is currently trading at 76 USD cents), so it is still about 10% higher than it would like (Chart 6). As the RBA has recently pointed out, a sustained lower currency is seen as necessary to encourage a solid lift in non-mining business investment intentions, which is the next stage of the rebalancing act.</span>
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<br><span style="line-height: 1.3em;">Although developments in Greece may get a passing reference in the post-meeting statement, they are unlikely to be of particular relevance to local policy. There may, however, be an increased focus on China, given recent policy moves and volatility in the stock market.</span>
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<a href="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.18.45%20AM.png" target="_blank">Click to enlarge</a><br><p><span><img src="/images/2015/07/03/Screen%20Shot%202015-07-03%20at%209.18.45%20AM.png" alt=""></span></p>
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<div class="column"><em>Paul Bloxham is chief economist for HSBC in Australia and New Zealand.</em></div>
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