Australian Economy
This is the main thing you need to know about the Australian economy:
To sum up: as engineer construction – mostly mining and energy – declined from $35b per quarter to $20 billion between 2012 and 2016, residential construction increased from $12 billion to $18 billion.
Which is basically this:
It’s all a little bit misleading because although it looks like the rise in residential construction of $6 billion has nowhere made up for the $15 billion hole in engineering, there are more jobs in building apartments and more local suppliers.
That’s why people like the Reserve Bank Governor and economists smile approvingly about the economic transition that has taken place in Australia – it has actually worked!
Except that engineering work is still falling, and as you can see from the second chart, the apartments boom has ended.
We need another boom to take its place, or else businesses and consumers step up and start doing investing and consuming.
The good news is that there are signs that it’s happening:
Source: AMP Capital
I’d say the main reason consumer sentiment is lagging is the heavy debt load that Australian households are carrying, combined with soaring house prices.
Usually a house price boom leads to improved consumer confidence, but perhaps the affordability issue is weighing this time.
In his testimony to the House of Reps standing committee on economics, RBA Governor Philip Lowe said we’re now seeing a reasonable pick-up in business investment in New South Wales and Victoria.
“It has been a long time coming.”
On the question of consumers, he said: ‘At the moment, most households with borrowings do seem to be coping pretty well. But the current high level of debt, combined with low nominal income growth, is affecting the appetite of households to spend, and we are seeing some evidence of this in the consumption figures.”
But the latest quarter has seen a solid pick up in retail trade…
Overall I think it’s fair to say that for the first time in seven years, the macro environment is supporting investment in equities and to look for opportunities to increase exposure to the market.
To see more of Alan Kohler visit The Constant Investor for his Weekly Overview, exclusive stock tips, investment ideas, podcasts and much more. Click here to learn more.
