The big surprises of the past financial year were mostly on the upside. The economy was stronger and consumers more resilient than anyone expected. Can this continue?
SmartCompany asked eight prominent economists, and opinion was unanimous: There are more good economic times ahead.
Jeff Oughton, NAB head of Australian & industry economics
What surprised you in 06/07? That Australia could put in another stellar growth performance when we were dragging along a rural sector with lead in its saddle bags due to the drought and at the same time maintain low inflation. Further rises in commodity prices leading to a big lift in the share markets were also unexpected.
What’s coming this year? It will be another good year but things will have to cool off a little. The world is cooling down, commodity prices will fall a little and returns fall a little, but the good news is that it has rained, so the farm sector is on the way back – in short, we’ll see the best times in 50 years.
What are the signs to watch? We’ll be keeping an eye on what happens in China and the US, at home we’ll be looking to see whether the supply side will keep up and if we’ll see good wage and productivity outcomes.
Steven Milch, St George Bank head of economic research
What surprised you in 06/07? That we ended up having three interest rate increases, and the strength of the commodity boom – and the resulting strength of the Australian dollar.
What’s coming this year? We’ll have a strong economy helped by a recovering housing sector. I still think we’ll see a weaker Aussie dollar and I don’t see any rate rise in the first half; maybe one in the second half of 07/08.
What are the signs to watch? With unemployment so low, we still have to watch wages and we have to watch the sharemarkets. We’ve had a phenomenal run and I think we’re due to pull back a bit.
Tony Pearson, ANZ head of Australian economics
What surprised you in 06/07? The sheer strength of the economy. We’ve expected it to gradually run out of steam, but it continues to perform at a very high level.
What’s coming this year? The economy will continue to perform well, growth will pick up further due to the rural sector improving, a pick up in dwelling and business investment and big state government infrastructure spends.
What are the signs to watch? Inflation is the issue. The authorities are focused pretty clearly on that and we think rates will need to rise once or twice early next year; we need to watch for wage or prices breakout and flow through to interest rates.
John Nicolaou, Chamber of Commerce and Industry WA chief economist
What surprised you in 06/07? In WA, that exports didn’t increase by as much as what we expected in volume and that certainly put a dent in our growth profile.
What’s coming this year? We are optimistic – exports should take over as the key driver of WA economic growth continuing, exporters will come on in a big way as a result of all the capacity expansion that has taken place, especially in the resources sector.
What are the signs to watch? We are very much an export-oriented economy, so events overseas do shape our future to a large degree, but in terms of China and the US the outlook is positive.
Tony Pensabene, Australian Industry Group chief economist
What surprised you in 06/07? The extent to which the Australian dollar has risen and stayed high. We were hopeful it wouldn’t get to much beyond US82c to US83c, but clearly it has moved to another level.
What’s coming this year? We’re anticipating more strong growth of around 4% on the back of pretty solid consumer sentiment, and we’re not anticipating much dollar movement either way.
What are the signs to watch? Skills constraints present a big risk – as that picks up they wil become even tighter and continue to hold business back.
Su-Lin Ong, RBC Capital Markets senior economist
What surprised you in 06/07? The resilience of the economy in the face of three rate hikes, cash rates to their higher rates in six years and we thought we would see some tentative signs of moderation but growth has accelerated.
What’s coming this year? We’ll see another year of above trend growth. The RBA will step up tightening but activity will remain robust.
What are the signs to watch? The risk is that inflation does pick up a little and require further tightening late this year or first half 2008, at this stage we have two rate hikes pencilled in for 2007/08.
Joshua Williamson TD Securities senior strategist
What surprised you in 06/07? The strength we’ve seen in economic growth despite the supply side capacity constraints and the mild inflation outcome.
What’s coming this year? Growth is accelerating and inflation pressure will become more acute. We think we’ll see interest rates up in the third quarter of 2007 and again in early 2008.
What are the signs to watch? We’ll be looking for further acceleration in inflation growth caused by private sector credit, consumer confidence and wages growth.
Andrew Hanlan, Westpac senior economist
What surprised you in 06/07? The economy regained momentum, growth had been a bit mixed but households were able to absorb the interest rate rises and move forward. The international backdrop also surprised on the high side.
What’s coming this year? We will see more good economic news, the US slowdown won’t have a big impact, the economy is set to have a stellar year and housing sector will go into a recovery phase.
What are the signs to watch? Downside risks to growth are minimal, late 2007/08 we will be watching if inflation rekindles with wages this biggest risk.
Want more intelligence on what’s coming in the year ahead? Don’t miss our PDF special for the new financial year on Monday.
– Mike Preston
The body charged with checking AWAs against the Federal Government’s “fairness test” refuses to say how long it will take to clear the massive backlog of agreements waiting to be checked.
From Monday the fairness test will come into operation, allowing the Workplace Authority to begin the mammoth task of checking a reported 50,000 AWAs that have been submitted for checking by business since the 7 May cut-off date earlier this year.
The Workplace Authority says it has a policy of not setting targets for processing times.
“We didn’t want it to be a race,” a Workplace Authority spokeswoman told SmartCompany. “The length of time it takes to process an agreement depends on its size and how complicated it is, and we just want to focus on being consistent and getting it right, not how long it takes.”
It appears likely that the businesses that will have the longest to wait will be those that lodged agreements in the last week. The Workplace Authority will throw approximately 500 staff at the task of processing AWAs against the test, but they will divide the staff between the backlog and new AWAs lodged after Monday – effectively allowing new AWAs to jump to the head of the queue.
As employers grapple with what the fairness test will mean, national retail chain Darrell Lea has reportedly abandoned AWAs and gone back to state awards. The company is being prosecuted by the Workplace Ombudsman (formerly the Office of Workplace Services) for allegedly breaching freedom of association laws and attempting to illegally coerce 12 casual sales assistants to sign AWAs.
The OWS alleges Darrell Lea store managers repeatedly told the casual workers that the AWAs were to be signed quickly and threatened to cut their weekend and public holiday rates if they did not sign the AWAs.
The AWAs are reported to have cut penalty rates for weekends and public holidays. The Australian Financial Review reports that after being notified of the Workplace Ombudsman’s investigation, Darrell Lea withdrew the AWAs and put the workers on to state awards.
– Mike Preston
The Australian Securities and Investments Commission will be licking its wounds today after Federal Court Judge Peter Jacobson found that the world’s biggest investment bank Citibank did not have a conflict of interest when it traded shares in Patrick Corporation at the same time as it was advising client Toll Holdings on a takeover of Patrick.
The case, which to an extent turned on the content of a conversation between two bankers having a smoko, would have been a landmark action had ASIC been successful because it challenged entrenched practices in investment banking industry. Firms use Chinese walls to manage conflicts between their own and their client’s interests.
The Australian Financial Review reports that ASIC is also under pressure from Labor, which wants an inquiry into ASIC’s operations following the collapse of property investment schemes, including Westpoint and Fincorp.
ASIC, which faces a legal bill of up to $10 million, has said the result will not deter it from taking insider trading cases in the future.
– Jacqui Walker
Nearly 25,000 DIY super funds have never lodged a tax return according to a Australian National Audit office report.
With $4 billion in tax breaks at stake, the tax office is planning to conduct 6000 audits this year to ensure that taxpayers have not exploited the transition to the new system that allowed taxpayers to contribute up to $1 million in after-tax contributions into super by 30 June.
– Jacqui Walker
No one was surprised to see the US Federal Reserve keep interest rates on hold at 5.25% last night, although GDP growth of 0.7% in the first quarter was slightly (0.1%) slower than expected.
Weak economic news in Japan has fuelled speculation interest rates are set to stay on hold their in the short term. This gave a shot in the arm to currency carry traders, which in turn fuelled a strong lift in the Australian dollar this morning, which at 12.20pm is trading at US84.77c after closing at US84.43c in Sydney yesterday.
At the same time today the S&P/ASX 200 is back were it started this morning at 6267.9, the market clearly taking a breather after recent volatility.
– Mike Preston