Tag Archives: Australia

Swan Says Australian Budget Surplus Goal Is Correct Strategy

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Let’s hope ‘better lucky than good’ keeps working for them:

Swan Says Australian Budget Surplus Goal Is Correct Strategy

By Elisabeth Behrmann

April 8 (Bloomberg) — Australia’s low unemployment compared with other industrialized nations and record investment make returning the budget to surplus the right strategy, Treasurer Wayne Swan said.

“With solid growth, contained inflation, very low public debt, low unemployment and a record pipeline of investment, we are the envy of virtually every advanced economy,” Swan said in his economic note today. Returning the budget to a surplus during fiscal 2012-13 is “the right strategy for an economy returning toward trend growth.”

Swan, who is preparing Australia’s budget for release on May 8, faces the challenge of balancing a drop in revenue against a government pledge to deliver a surplus in the 12 months through June next year. While the resources boom is benefiting Western Australia and Queensland, retailers and manufacturers are facing tough conditions in other states.

In the past month, Australian government reports have shown fourth-quarter gross domestic product expanded at half the pace economists forecast, and the weakest exports in almost three years led to Australia’s first trade deficit in 11 months in January.

Mining investment in Australia, the world’s biggest exporter of iron ore and coal, is estimated to reach A$120 billion ($124 billion) next year, an increase of around 155 percent in two years, Swan said last month.

‘Best Defense’

“Claims that the return to surplus is putting growth at risk overlook the fact that the government’s budget strategy has been clear and consistent for a long time,” Swan said. “Returning the budget to surplus is our best defense and is a key sign of our strong economy.”

The Reserve Bank of Australia held interest rates unchanged on April 3, while signaling it may resume cutting rates as soon as next month if weaker-than-forecast growth slows inflation.

Returning the budget to surplus is “the right thing to do,” Prime Minister Julia Gillard said April 1, while pledging to support jobs. Australia has battled natural disasters, including record floods in Queensland last year, that have hampered economic activity, including tourism as well as export of coal.

China is Australia’s biggest trading partner, and the RBA has said it expects Chinese demand for commodities to remain strong even as recent data painted a mixed picture of the world’s second-largest economy.

Australia has grown more dependent on resources as employment in manufacturing dropped by about 30 percent since 2007, while mining and government payrolls rose by more than 50 percent, HSBC Holdings Plc estimates.

“Maintaining our credible fiscal policy also sends a strong message of confidence to investors across the world in uncertain times,” Swan said.

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News recap comments

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The news flow from last week was so voluminous it was nearly impossible to process. For good measure I want to start today’s commentary with a simple recap of what happened.

On the negative side –

· Greece called a referendum and threw bailout plans up in the air taking Greek 2yrs from 70% to 90% or +2000bps.
· Italian 10yr debt collapsed 40bps with spreads to Germany out 70bps. The moves were far larger in the 2yr sector.
· France 10y debt widened 25bps to Germany. At one point spreads were almost 40 wider.
· Italian PMI and Spanish employment data were miserable.
· German factory orders plunged 4.3 percent on the month.
· The planned EFSF bond for 3bio was pulled.
· Itraxx financials were +34 while subs were +45.
· Draghi predicted a recession for Europe along with disinflation.
· The G20 was flop – there was no agreement on IMF involvement in Europe.
· The US super committee deadline is 17 days away with no clear agreement.
· The 8th largest US bankruptcy in history took place.
· US 10yr and 30yr rallied 28bps, Spoos were -2.5%, the Dax was -6% and EURUSD was -3%.
· German CDS was up 16bps on the week.

On the positive side –

· The Fed showed its hand with tightening dissents now gone and an easing dissent in place.

Too bad what they call ‘easing’ at best has been shown to do nothing.

· The Fed’s significant downside risk language remained intact.

Downside risks sound like bad news to me.

· In the press conference Ben teed up QE3 in MBS space.

Which at best have been shown to do little or nothing for the macro economy.

· US payrolls, claims, vehicle sales and productivity came in better than expected.

And the real output gap if anything widened.

· S&P earnings are coming in at +18% y/y with implied corporate profits at +23 percent q/q a.r.

Reinforces the notion that it’s a good for stocks, bad for people economy.

· Mortgage speeds were much faster than expectations suggesting some easing refi pressures.

And savers holding those securities saw their incomes cut faster than expected.

· The ECB cut 25bps and indicated a dovish forward looking stance.

Which reduced euro interest income for the non govt sectors

· CME Margins were reduced.

Just means volatility was down some.

· There was a massive USDJPY intervention which may be a precursor to a Swiss style Japanese policy easing.

Which, for the US, means reduced costs of imports from Japan, which works against US exports, which should be a good thing for the US as it means for the size govt we have, taxes could be lowered to sustain demand, but becomes a bad thing as our leadership believes the US Federal deficit to be too large and so instead we get higher unemployment.

· The Swiss have indicated they want an even weaker CHF – possibly EURCHF 1.40.

When this makes a list of ‘positives’ you know the positives are pretty sorry

· The Aussies cut rates 25bps

Cutting net interest income for the economy.

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Australia’s Budget Will Make ‘Substantial’ Savings, Swan Says

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The names of the nations change but the out of paradigm values are universal:

Australia’s Budget Will Make ‘Substantial’ Savings, Swan Says

By Gemma Daley

May 8 (Bloomberg) — Australia’s budget will make “substantial” savings after revenue was crimped by a record exchange rate, the nation’s costliest natural disasters and Japan’s earthquake, Treasurer Wayne Swan said.

Swan, who delivers the budget to Parliament tomorrow, said yesterday the deficit in the government’s finances will widen in the fiscal year ending June 30 before increased mining revenue and an improving economy help bring about a surplus in 2012-13.

Prime Minister Julia Gillard’s administration has revealed the budget will tighten welfare payments to get people back into the workforce and cut 1,000 jobs in the civilian defense industry in the next three years. The government also aims to stop high-income earners receiving a subsidy for having private health insurance.

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Australia

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I don’t follow it at all closely but in general they have been following a policy of budget surpluses and relying on increasing levels of private sector debt to sustain aggregate demand.

That’s not sustainable, even for China’s coal mine, and especially with China showing signs of slowing down.

Retailers cry poor as sales drop sharply during Christmas period

By Nick Gardner and Brittany Stack

December 19 — MAJOR store bosses claim Australia is experiencing a retail recession, with the quietest and slowest Christmas shopping period in 20 years.

Rising utility bills, mortgage rates and rents have decimated families’ disposable incomes, forcing many retailers to start Boxing Day sales one month in advance in a bid to entice shoppers, reported The Daily Telegraph.

Harvey Norman boss Gerry Harvey said there would be “blood on the streets” in the retail sector because business is so bad, the worst since the recession of the early 1990s.

“It’s a crisis, the worst in 20 years,” he said.

“There is a recession in retail right now. Boxing Day sales have had to come early because retailers need to sell something to pay their staff.”

The news comes as the Government announced an inquiry into the future of the retail sector to examine issues of competition, and the $1000 GST and duty-free threshold on overseas shopping.

Australian retailers and shopping centre owners have formed an alliance to try to persuade the government to abolish the $1000 GST-free threshold. They plan to spend millions on an advertising campaign to try to have imported goods subject to tax and import duty. Mr Harvey is not alone in his bleak outlook.

David Jones and Myer are offering discounts of up to 40 per cent across all departments in their Sydney stores, saying it was the toughest environment for years.

“Retail is challenging right now and to drive people into stores we are offering significant discounting,” Myer spokesman Mitch Catlin said.

“Every retailer is doing it. It is the best final week I can remember for consumers going into Christmas.”

David Jones described its sales as “patchy”.

Retailers traditionally make up to a third of their annual profits in December, but sales are down across the board as stores battle plummeting sales, shrinking profit margins and increased competition from overseas websites.

Russell Zimmerman, executive director of the Australian Retailers’ Association, said he’d never seen tougher conditions in 30 years.

“We’ve had 43 per cent of our retailers reporting sales figures for the period from December 5 to 11 at below last year’s levels. To have so many suffering falling sales is terrible.”

He said consumers have been affected not only by rate rises and higher utility bills but also spooked by events overseas. “They’re seeing economies such as Greece and Ireland in crisis and they’re getting worried,” Mr Zimmerman said.

He predicted retail sales of $39.9 billion, a 3.5 per cent rise on last year or about half the usual increase. He said this may force retailers to cut staff hours or cut back on casual workers. “We’re hoping for a good last week into Christmas,” he said.

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CH News | Australia Has Record Trade Surplus on China Coal, Iron Demand

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It’s good to be China’s coal mine.

Though it does make Australia one of the world’s largest contributors to the increasingly unpopular emissions issues.

Australia Has Record Trade Surplus on China Coal, Iron Demand


Australia Has Record Trade Surplus on China Coal, Iron Demand

By Jacob Greber

Aug. 4 (Bloomberg) — Australia’s trade surplus unexpectedly
reached a record in June as Chinese demand spurred exports of
coal and iron ore, while imports stagnated amid a slowdown in
domestic spending.

The excess of exports over imports reached A$3.54 billion
($3.2 billion), almost double the median forecast in a Bloomberg
News survey, a Bureau of Statistics report showed in Sydney
today. A separate report showed house-price gains decelerated in
the second quarter, underscoring the impact of the central
bank’s six interest-rate increases since early October.

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Aussies buy their own currency

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[Skip to the end]

“Australia’s central bank has intervened to support the tumbling Australian dollar, but failed to prevent its slide to five-year lows against the U.S. currency and its deepest-ever trough against the yen. “

This intervention has two purposes.

One is to keep the decline orderly, the other is anti-inflationary, as the apparent collapse in the currency is immediately passed through to import prices, which play a major role in domestic consumption.

The problem in using intervention to support one’s own currency is that reserves get depleted before the desired level of the currency is achieved.

One core issue is declining real terms of trade due to falling prices of Australia’s exports vs. the prices of their imports.

The other issue is internal distribution.

Australia digs and exports coal, for example, and the boats return full of consumer goods.

A falling currency alters distribution of consumption to those residents in export industries and away from the rest of the population.

The recent US history:

Over one year ago Paulson successfully got foreign CBs to stop buying dollars.

That, along with rising crude prices, sent the dollar to its subsequent lows.

He did this by calling CBs buying dollars currency manipulators and outlaws, insisting they let markets decide currency values.

This was a thinly veiled ploy to get the dollar down to spur exports, as articulated by the Fed chairman in subsequent congressional testimony.

It ‘worked’ as US exports grew at record pace and US GDP muddled through at modestly positive numbers. (A nation net imports exactly to the extent non residents realize their desire to accumulate its net financial assets, as discussed in previous posts)

It also caused a punishing decline in real terms of trade for the US and a decline in the US standard of living, but that was less important to policy makers than ‘pretty trade numbers’ and sustaining domestic demand via sufficiently supportive fiscal policy.

This all caused demand to fall overseas, as governments were (and for the most part remain) in the dark as to sustaining domestic demand, and their economies were directly or indirectly connected to exports to the US.

After Q2 this year rising US exports and falling non-petro imports broke the back of world economies and it has all come crashing down.

Falling crude prices due to ‘the great Mike Masters sell off’ (that I’m still waiting to run its course, and which last week’s OPEC cuts may be signaling), also made dollars a lot tougher to get and created a dollar squeeze on a world that had quietly gotten strung out on dollar borrowings.

Accumulating USD by non-residents to pay off debt in the private sectors is working to strengthen the USD the same way foreign CB accumulation had done.

It is bringing down their currencies and will eventually support foreign exports (at the expense of their real terms of trade, but that’s another story).

The US trade gap will fall substantially for a while as crude prices work their way into the numbers.

But then, should world private sector dollar ‘savings’ get rebuilt via USD debt reduction, make foreign goods cheap enough for US imports to once again start to grow.

A substantial increase in US domestic demand via deficit spending (which should be forthcoming with an Obama presidency and democratic control in both houses of Congress.) can restore domestic output, employment, and US imports, to restore our standard of living to pre-Paulson levels.

If we have a policy that drops energy imports, otherwise we can give it all back in short order.

But that’s all getting ahead of one’s self.

For now, the strong dollar seems to be giving foreign CBs, like the RBA in Australia, an inflation scare even as their economies weaken, housing prices sag, and unemployment rises.

This is typical of emerging market economies- external debt burdens high inflation due to weak currencies (due to debt service from the external debt- they need to sell local currency to meet their external debt payments) high unemployment deteriorating real terms of trade as export prices fail to keep up with import prices.

Again, sorry for the earlier mix-up. Need to get my eyes checked!


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