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Back from a busy few busy days in Cairns which included two economics breakfasts; one yesterday with Michael Workman from Comm Bank (hosted by the AICD) and the other this morning with Warren Hogan from ANZ (hosted by Advance Cairns). Both painted fairly positive pictures for Australian growth in the coming years (+ or – about 3% real GDP pa) and both suggested that they (and by that they meant from an economist’s standpoint) would liked to have seen somewhat more done in the Budget to address the structural problems; although both also did not see much in the way of a negative impact on Australian growth from the fiscal tightening (which is, after all, only about 1% of GDP). ANZ also noted that their forecast for nominal GDP growth of 5.2% was almost double the forecast in the Budget (3%); this would, if correct, potentially mean a return to a surplus sooner than forecast. Warren made note of the post-Budget decline in consumer confidence (see Gene Tunny’s piece on this today) but did not expect that effect to continue or have any major impact on growth.
Comm Bank are looking for the Cash Rate to rise in Q4 this year (perhaps Melbourne Cup day) while ANZ do not expect a move until mid-2015. Both stress that rises, once they start, will only be in the order of 100-150bps in total.
Both suggest that unemployment is at, or very close to, its peak and should start to trend slowly lower with leading indicators suggesting employment growth to come.
Neither expects to see a much weaker A$ with Comm Bank looking towards parity with the greenback again by end 2014. ANZ are talking about a “wide spread” between US$80 cents ad US$1.10 with a “tighter spread” of about US$90 cents to US$1.00.
Comm Bank are looking for rates in the US to start to move higher by Q1 2015, while ANZ expect them to remain on hold a little longer with the first rises (which Warren thinks could be a full 50bps) not until Q3 that year.
ANZ were particularly optimistic on Chinese growth. Although over the next 10-20 years the rate of Chinese GDP growth will drift towards a more “normal” 3%pa, Warren expects GDP growth of close to 7% for the next few years (as does Comm Bank). ANZ are confident that the Chinese can manage the shift from investment to consumption led growth and when it comes to the Chinese middle class Warren said “we ain’t seen nothing yet!”. That scenario would certainly be strongly positive for the Cairns and FNQ economy.
ANZ estimate that the “mining investment cliff” will remove approx $10bn from investment per annum over coming years. However, he also pointed out that a recovering construction sector (other than mining) would potentially add significantly more than that. Warren commented that the structural shift from mining investment to other sectors to lead growth was well underway.
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