5 July 2020
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Morrison's budget is wrong on growth. It will be higher!

Peter Switzer
5 May 2016

By Peter Switzer

The Treasurer Scott Morrison has been copping it for his super policy proposals and anyone who knows something about super can see why. I fear he’ll lose a lot of votes over many of those changes but one mistake he made, which was a good one, was his guess on future economic growth.

He and Treasury boffins played a conservative game speculating we’d grow by only 2.5%. I reckon we’re a chance for 3% but I’d feel very comfortable tipping a number around 2.75%.

Up until now, the Reserve Bank had us growing around 3% plus but they could change that with their monetary policy statement today.

Here’s why I think we’ll grow faster than the Budget’s guess:

  • Our last two quarterly economic growth numbers were 1.1% and 0.6%. If you multiply them by two to annualise the number, just as the RBA does, then we have 3.4% growth.
  • Unemployment is falling and is at a 30-month low of 5.7%. Over 2015 300,000 jobs were created, so these now employed people aren’t going to just save their new money.
  • Retail sales rebounded after virtually a flat result in February and activity levels lifted in six of the states and territories, with sales up 0.4% in March after a revised 0.1% lift in February. 
  • The RBA has cut the cash rate of interest to 1.75% and the banks have passed it on, which will hot up growth.
  • Our 0.2% deflation reading in March gives the RBA scope to cut more and expert central bank watchers expect another.
  • The rate cut strategy will keep a lid on a rising dollar and a lower dollar helps economic growth, if you believe history.
  • The weekly ANZ/Roy Morgan consumer confidence rating rose by 2.2 points (2%) to 113.9 in the week to May 1. Confidence is up 2% over the year and above the average of 112.1 since 2014. For confidence to be up with such a mixed start to the year is a good sign.
  • Business credit rose by 0.3% in March and is 6.5% higher than a year ago, just off the strongest growth recorded in seven years.
  • Even though the last headline on the terms of trade used the word “collapse”, we’re at the end of this slide. (See the chart below) 

  • On how business is feeling, conditions fell 3 points to +9, which is well above the long run average of +5. However, the 1 point slip in confidence took it slightly below the long run average at +5 but they’re still good numbers taken ahead of a pro-business Budget and they had the black cloud of an election hanging over them. NAB’s chief economist, Alan Oster said this about the results: “With consistently good results like these from our survey, it is difficult not to have a degree of confidence in the near-term outlook.”
  • Over the year to April, a record 1,169,057 new vehicles were sold.
  • We have record levels of tourism, with Chinese tourists cracking the million mark.
  • Despite bank interest rate rises, capital city home prices rose by 1.7% in April after a 0.2% lift in March. Home prices were up by 7.3% over the year to April and dwelling prices rose in six of the eight capital cities in April.
  • The Performance of Manufacturing index fell from 12-year highs, down by 4.9 points to 53.4 in April. A reading above 50.0 indicates that the sector is expanding. The index has been above 50 for 10 months!

I could go on but the point I’m making is that there is a lot of good news out there and I have left stuff out, like the rise in job ads, which points to a still strong jobs market.

And I love this one from the CEO of Quest Apartments, whose number one typical customer is a business traveller. Paul Constantinou said March was his best quarter ever!

I have to admit I thought the March quarter felt a bit soft but looking at this data I’m thinking I was too negative, which is a strange feeling for me.

The good news is that if this economy grows better than the Treasurer’s guess, then maybe we’ll see a much better looking deficit number in ensuing Budgets, which will be good for our AAA credit rating and interest rates.

You might be asking if things are so good, why did the RBA cut rates? To that I’d say — to get that damn Aussie dollar down and that fluke deflation number created the opportunity to do it. Well done, Glenn Stevens!

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