1 00:00:05,680 --> 00:00:08,520 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Adam Lang. 2 00:00:08,880 --> 00:00:12,400 Speaker 2: The Australian economy grew by just zero point two percent 3 00:00:12,520 --> 00:00:15,680 Speaker 2: in the June quarter and one percent annually. It's the 4 00:00:15,720 --> 00:00:19,159 Speaker 2: slowest rate of growth since the nineteen nineties, excluding the 5 00:00:19,160 --> 00:00:22,640 Speaker 2: COVID nineteen pandemic, and a large chunk of it comes 6 00:00:22,680 --> 00:00:26,280 Speaker 2: back to households tightening their belts, with discretionary spending down 7 00:00:26,360 --> 00:00:29,319 Speaker 2: one point one percent for the quarter. I'm delighted to 8 00:00:29,360 --> 00:00:31,400 Speaker 2: say that Joe Masters is with us. She is the 9 00:00:31,480 --> 00:00:34,800 Speaker 2: chief economist at Baron Joey Joe, welcome back to Fear 10 00:00:34,800 --> 00:00:35,200 Speaker 2: and Greed. 11 00:00:35,600 --> 00:00:36,680 Speaker 3: Great to be talking to you. 12 00:00:37,240 --> 00:00:39,480 Speaker 2: Thank you for joining us in such a busy time 13 00:00:39,520 --> 00:00:41,959 Speaker 2: of year. So what did you make of the Australian 14 00:00:42,000 --> 00:00:46,040 Speaker 2: National accounts headline numbers released by the Australian Bureau Statistic yesterday. 15 00:00:46,360 --> 00:00:47,280 Speaker 1: Were you surprised? 16 00:00:48,040 --> 00:00:50,800 Speaker 3: We weren't surprised, Adam. Look, as you said, the headline 17 00:00:50,840 --> 00:00:53,520 Speaker 3: number is very, very weak, but it was in line 18 00:00:53,560 --> 00:00:56,920 Speaker 3: with market expectations. Now, to be fair, when we get 19 00:00:56,920 --> 00:01:00,240 Speaker 3: into the detail, and I know most people think about 20 00:01:00,320 --> 00:01:03,480 Speaker 3: economic growth, but the National accounts are very rich source 21 00:01:03,480 --> 00:01:07,240 Speaker 3: of information about the economy. We do see more evidence 22 00:01:07,280 --> 00:01:11,959 Speaker 3: that the private domestic part of the economy is incredibly weak. 23 00:01:12,040 --> 00:01:16,120 Speaker 3: So really it's been exports and also government spending. And 24 00:01:16,160 --> 00:01:19,480 Speaker 3: when we look at private domestic economy, it actually contracted 25 00:01:19,520 --> 00:01:21,520 Speaker 3: in the quarter, So that bit is a bit weaker 26 00:01:21,840 --> 00:01:23,360 Speaker 3: than economists have been looking for. 27 00:01:24,440 --> 00:01:27,520 Speaker 2: Let's get into the detail and the individual components, Joe, 28 00:01:27,560 --> 00:01:29,640 Speaker 2: because as you point out, that's so important. 29 00:01:29,640 --> 00:01:31,080 Speaker 1: It's not just one average story. 30 00:01:31,360 --> 00:01:33,920 Speaker 2: There's lots of parts of This was one of the 31 00:01:33,959 --> 00:01:36,440 Speaker 2: biggest hits to growth, to drop in household spending. 32 00:01:37,720 --> 00:01:42,880 Speaker 3: Drops in household spending are actually quite rare. That was unanticipated. 33 00:01:43,640 --> 00:01:46,840 Speaker 3: We're not surprised that it's the household sector that's suffering, 34 00:01:47,160 --> 00:01:50,120 Speaker 3: but to get a contraction in the quarter was certainly 35 00:01:50,120 --> 00:01:54,240 Speaker 3: outside of expectations. So to put that into perspective, outside 36 00:01:54,360 --> 00:01:58,240 Speaker 3: of the global financial crisis and the pandemic, this is 37 00:01:58,280 --> 00:02:01,600 Speaker 3: only the fourth time we've had quarterly contraction since that 38 00:02:01,680 --> 00:02:04,560 Speaker 3: deep recession that we saw in the nineteen nineties. And 39 00:02:04,600 --> 00:02:07,040 Speaker 3: when you think about that in the context of population 40 00:02:07,200 --> 00:02:11,000 Speaker 3: growth that's running in the high two percent, that's an 41 00:02:11,000 --> 00:02:15,320 Speaker 3: incredibly weak outlook and outcome for the biggest part of 42 00:02:15,320 --> 00:02:18,239 Speaker 3: our economy. Remember, household spending is about fifty five percent 43 00:02:18,240 --> 00:02:20,840 Speaker 3: of total economic activity in the economy. 44 00:02:21,080 --> 00:02:24,000 Speaker 2: And as you say that per capita number, that would 45 00:02:24,000 --> 00:02:24,799 Speaker 2: look even worse. 46 00:02:25,800 --> 00:02:29,160 Speaker 3: Absolutely, now it looks weak for some time. We are 47 00:02:29,160 --> 00:02:33,320 Speaker 3: in a deep per capita recession. We're now two percent 48 00:02:33,480 --> 00:02:36,360 Speaker 3: below the peak that we had in per capita GDP 49 00:02:37,080 --> 00:02:41,959 Speaker 3: and also in the longest consecutive contraction on record. Now, 50 00:02:42,000 --> 00:02:45,560 Speaker 3: sometimes investors will say, why do we care about per 51 00:02:45,600 --> 00:02:50,120 Speaker 3: capita GDP? Surely we just care about all economic activity. 52 00:02:50,520 --> 00:02:54,239 Speaker 3: But this reason is is that people feel the economy 53 00:02:54,240 --> 00:02:57,799 Speaker 3: on a per capita basis, and it's also links into 54 00:02:57,800 --> 00:03:00,880 Speaker 3: that concept of unemployment, which is also a per happier concept. 55 00:03:01,000 --> 00:03:04,560 Speaker 3: So this is telling us that without population growth and 56 00:03:04,600 --> 00:03:08,280 Speaker 3: without public spending, this economy would be in a deep recession. 57 00:03:08,919 --> 00:03:12,040 Speaker 2: Wow, so let's have a look at households and savings. 58 00:03:12,520 --> 00:03:15,360 Speaker 2: It looks like those numbers are really soft. How are 59 00:03:15,400 --> 00:03:16,120 Speaker 2: you seeing those? 60 00:03:16,840 --> 00:03:17,080 Speaker 1: Yeah? 61 00:03:17,120 --> 00:03:20,800 Speaker 3: Absolutely so. What we've seen over the last eighteen months, 62 00:03:20,880 --> 00:03:24,560 Speaker 3: I suppose, and certainly in the last year, was that 63 00:03:24,600 --> 00:03:28,320 Speaker 3: household consumption stayed more resilient than we'd expected. And we're 64 00:03:28,360 --> 00:03:31,880 Speaker 3: seeing something similar in other economies like the US When 65 00:03:31,880 --> 00:03:35,240 Speaker 3: we look at Australia, it was really buffered from high 66 00:03:35,320 --> 00:03:38,720 Speaker 3: interest rates by two things. The first one was savings, 67 00:03:39,040 --> 00:03:42,240 Speaker 3: so lots of households built up their savings during the 68 00:03:42,280 --> 00:03:44,840 Speaker 3: pandemic when we supported income and you couldn't go out 69 00:03:44,880 --> 00:03:47,960 Speaker 3: and spend, and slowly we've been winding that down. But 70 00:03:48,080 --> 00:03:49,920 Speaker 3: the other one was really around the strength of the 71 00:03:50,000 --> 00:03:54,200 Speaker 3: labor market, not just employment or a low number of 72 00:03:54,200 --> 00:03:56,560 Speaker 3: people that were unemployed, but the number of hours being 73 00:03:56,600 --> 00:04:00,200 Speaker 3: worked was also boosting income. Now both of them those 74 00:04:00,240 --> 00:04:04,320 Speaker 3: things are effectively coming to an end, and as a result, 75 00:04:04,480 --> 00:04:09,120 Speaker 3: households are really starting to pull in any discretionary spending, 76 00:04:09,720 --> 00:04:12,600 Speaker 3: and within that discretionary component we could see it across 77 00:04:12,680 --> 00:04:15,640 Speaker 3: quite a broad range of goods and services. But the 78 00:04:15,680 --> 00:04:18,000 Speaker 3: other interesting one, and I think this is my favorite 79 00:04:18,080 --> 00:04:21,560 Speaker 3: fun fact of the national accounts that we've had this week, 80 00:04:21,920 --> 00:04:25,560 Speaker 3: is that we're eating less as in volume. Which I 81 00:04:25,600 --> 00:04:26,680 Speaker 3: find quite interesting. 82 00:04:27,000 --> 00:04:29,599 Speaker 1: Is that per capita or overall, no. 83 00:04:29,720 --> 00:04:35,320 Speaker 3: That's it's overall, So overall the volume of food consumed 84 00:04:35,520 --> 00:04:39,159 Speaker 3: either from supermarkets or from cafes and restaurants has contracted 85 00:04:39,160 --> 00:04:42,640 Speaker 3: in the quarter. Now I find that quite surprising because 86 00:04:42,720 --> 00:04:46,320 Speaker 3: that's essential, right, So perhaps some households are cutting back 87 00:04:46,360 --> 00:04:50,599 Speaker 3: on some of those discretionary snacks, if you like, but 88 00:04:50,880 --> 00:04:55,120 Speaker 3: also perhaps trading down into lower value things at the supermarket. 89 00:04:55,240 --> 00:04:57,520 Speaker 3: So that is a real sign that households are pulling 90 00:04:57,560 --> 00:04:58,400 Speaker 3: in on the budget. 91 00:05:00,279 --> 00:05:03,160 Speaker 2: We're tightening our belts before and I took that as 92 00:05:03,200 --> 00:05:04,919 Speaker 2: a metaphor, but perhaps you mean. 93 00:05:04,760 --> 00:05:07,080 Speaker 3: Literally, Yeah, that's exactly right. 94 00:05:07,600 --> 00:05:10,520 Speaker 2: So a government spending you touched on that before, How 95 00:05:10,520 --> 00:05:12,120 Speaker 2: does that play into this result? 96 00:05:12,960 --> 00:05:17,320 Speaker 3: Yeah, so we did see quite material contribution from government spending, 97 00:05:17,720 --> 00:05:21,520 Speaker 3: and that's government investment, but also what we call consumption, 98 00:05:21,680 --> 00:05:24,480 Speaker 3: so that's the provision of goods and services, and we 99 00:05:24,520 --> 00:05:28,440 Speaker 3: saw it across state governments and federal governments. So to 100 00:05:28,520 --> 00:05:32,400 Speaker 3: put that in perspective, the public sector contributed zero point 101 00:05:32,480 --> 00:05:36,160 Speaker 3: three percentage points to growth in the quarter, and as 102 00:05:36,160 --> 00:05:38,080 Speaker 3: you said in your intro, we only got zero point 103 00:05:38,120 --> 00:05:41,359 Speaker 3: two percent growth. So basically, if you take out the 104 00:05:41,360 --> 00:05:45,120 Speaker 3: public sector, the economy contracted in the quarter. And there's 105 00:05:45,120 --> 00:05:48,200 Speaker 3: a variety of ways we can cut that, but there's 106 00:05:48,200 --> 00:05:50,680 Speaker 3: no doubt the public sector has been really important. 107 00:05:51,480 --> 00:06:00,120 Speaker 2: Stay with me, Joe, we'll be back in a minute. 108 00:06:00,320 --> 00:06:04,599 Speaker 2: I'm speaking to Baron Joey, Chief economist Joe Masters. So 109 00:06:04,720 --> 00:06:06,920 Speaker 2: let's have a look at home building, which seems to 110 00:06:06,960 --> 00:06:09,400 Speaker 2: have slumped three percent of the last year. This tends 111 00:06:09,440 --> 00:06:11,680 Speaker 2: to have a flow on effect because it's not just 112 00:06:11,720 --> 00:06:14,160 Speaker 2: the construction and materials that matter, it's also the new 113 00:06:14,200 --> 00:06:16,640 Speaker 2: purchases that we might need to fill a new home. 114 00:06:16,920 --> 00:06:18,760 Speaker 2: How are you seeing the home building numbers? 115 00:06:19,440 --> 00:06:21,960 Speaker 3: So, as you said, we have seen a contraction. That's 116 00:06:22,000 --> 00:06:24,960 Speaker 3: not a surprise. We've known that that's been coming for 117 00:06:25,000 --> 00:06:28,840 Speaker 3: some time, partly because if you think about what homebuilder 118 00:06:28,960 --> 00:06:31,679 Speaker 3: was designed to do during the pandemic, it was designed 119 00:06:31,680 --> 00:06:35,040 Speaker 3: to bring forward building activity. So when you bring forward 120 00:06:35,040 --> 00:06:38,000 Speaker 3: building activity, you often end up with a whole at 121 00:06:38,040 --> 00:06:41,760 Speaker 3: the other end. We've also see in the construction space 122 00:06:41,839 --> 00:06:44,839 Speaker 3: still a lot of elevated pressure around the cost of 123 00:06:45,000 --> 00:06:48,080 Speaker 3: some inputs, mostly those that come at the later stage 124 00:06:48,120 --> 00:06:51,839 Speaker 3: of construction, but also labor, and so that's sort of 125 00:06:51,880 --> 00:06:55,160 Speaker 3: slowing down the ability to complete some of these residential 126 00:06:55,760 --> 00:06:59,840 Speaker 3: construction activity. Now, we also know from building approvals that 127 00:07:00,000 --> 00:07:03,000 Speaker 3: not much is getting approved. So this contraction of Rezie 128 00:07:03,000 --> 00:07:06,080 Speaker 3: construction is really only at the beginning of what' psyche 129 00:07:06,160 --> 00:07:10,920 Speaker 3: to be a multi quarter long contraction. There I just 130 00:07:11,000 --> 00:07:13,800 Speaker 3: note that building approvals per thousand people in the economy 131 00:07:13,880 --> 00:07:17,040 Speaker 3: is at record lows, so not a surprise there. But 132 00:07:17,120 --> 00:07:20,040 Speaker 3: one as you said, that does flow through the construction 133 00:07:20,080 --> 00:07:22,920 Speaker 3: sector is a big employer for example, so that is 134 00:07:23,000 --> 00:07:25,680 Speaker 3: adding to weakness, but probably wasn't a surprise on the day. 135 00:07:26,280 --> 00:07:28,960 Speaker 2: Well, so you can see this continuing for some time now. 136 00:07:29,240 --> 00:07:30,920 Speaker 2: We know that Michelle Bullock is due to give a 137 00:07:30,920 --> 00:07:33,960 Speaker 2: couple of speeches today. Got the Reserve Bank do you 138 00:07:34,000 --> 00:07:36,320 Speaker 2: to meet later this month? What do you think the 139 00:07:36,360 --> 00:07:37,920 Speaker 2: Reserve Bank will make of these figures? 140 00:07:38,760 --> 00:07:42,000 Speaker 3: Yeah, so I think a lot of investors and particularly 141 00:07:42,040 --> 00:07:45,400 Speaker 3: perhaps offshore investors will be looking at this GDP data 142 00:07:45,560 --> 00:07:49,040 Speaker 3: and thinking that perhaps a rate cut this year is 143 00:07:49,080 --> 00:07:52,720 Speaker 3: now a possibility or on the cards. But I expect 144 00:07:53,080 --> 00:07:56,680 Speaker 3: Governor Bullock later today, when she talks at the Anika lunch, 145 00:07:56,720 --> 00:08:00,560 Speaker 3: to actually sound quite hawkish. Still, the battle of her 146 00:08:00,600 --> 00:08:03,680 Speaker 3: speech is the cost of high inflation. So I then 147 00:08:03,760 --> 00:08:06,520 Speaker 3: we need to remember that whilst these growth numbers are 148 00:08:06,520 --> 00:08:10,160 Speaker 3: turning over, inflation has made very little progress in the 149 00:08:10,200 --> 00:08:14,120 Speaker 3: last six months, and the unemployment rate, whilst it's risen, 150 00:08:14,160 --> 00:08:17,560 Speaker 3: it's been quite orderly and is still below full employment 151 00:08:17,640 --> 00:08:21,640 Speaker 3: or the RBA's estimate of full employment. So I think 152 00:08:21,720 --> 00:08:24,960 Speaker 3: she'll still talk about inflation being too high and how 153 00:08:24,960 --> 00:08:27,680 Speaker 3: do we address that. Well, we need a better balance 154 00:08:27,680 --> 00:08:30,920 Speaker 3: between aggregate supply and aggregate demand in the economy, or 155 00:08:30,960 --> 00:08:33,240 Speaker 3: the output gap if you like, and we think even 156 00:08:33,240 --> 00:08:36,440 Speaker 3: after today's data, the RBA would still assess the economy 157 00:08:36,440 --> 00:08:39,200 Speaker 3: to have a positive output gap. So we need more 158 00:08:39,240 --> 00:08:42,240 Speaker 3: economic weakness, We need more weakness in the labor market, 159 00:08:42,679 --> 00:08:45,319 Speaker 3: and that in time will bring inflation down and open 160 00:08:45,320 --> 00:08:46,560 Speaker 3: the path to lower rates. 161 00:08:47,040 --> 00:08:49,040 Speaker 1: Gosh, it sounds like it's going to stay tough for 162 00:08:49,080 --> 00:08:49,640 Speaker 1: a little while. 163 00:08:49,679 --> 00:08:54,040 Speaker 3: Yet it's a very confronting story, particularly for those parts 164 00:08:54,040 --> 00:08:55,920 Speaker 3: of the economy they are at the coal face of 165 00:08:56,240 --> 00:08:59,360 Speaker 3: a slowing labor market or high interest rates. And of 166 00:08:59,400 --> 00:09:04,400 Speaker 3: course we've heard Governor Bullock and other RBA representatives acknowledge 167 00:09:04,440 --> 00:09:07,000 Speaker 3: that we know that mounetary policy is a very, very 168 00:09:07,040 --> 00:09:10,400 Speaker 3: blunt tool, and that's what's really playing out at the moment. 169 00:09:10,480 --> 00:09:12,959 Speaker 3: But I suspect the message that the governor will give 170 00:09:13,040 --> 00:09:16,000 Speaker 3: is that inflation hurts everyone, and of course that's a 171 00:09:16,040 --> 00:09:17,559 Speaker 3: message that we've heard from them before. 172 00:09:18,240 --> 00:09:21,400 Speaker 2: Yeah, So, Joe, this brings up the federal government's perspective 173 00:09:21,440 --> 00:09:24,000 Speaker 2: in all of this, and it is perhaps months six 174 00:09:24,040 --> 00:09:27,280 Speaker 2: months till an election is on the cards. Will the 175 00:09:27,320 --> 00:09:30,240 Speaker 2: federal government be under some pressure to help stimulate the economy, 176 00:09:30,640 --> 00:09:32,520 Speaker 2: you know, how do they do that without adding to 177 00:09:32,559 --> 00:09:33,679 Speaker 2: that inflation challenge? 178 00:09:33,720 --> 00:09:34,720 Speaker 1: How are you seeing that? 179 00:09:35,480 --> 00:09:38,600 Speaker 3: It's a big debate now. I think we need to 180 00:09:39,320 --> 00:09:42,120 Speaker 3: remember that in terms of monetary policy, we think about 181 00:09:42,120 --> 00:09:45,240 Speaker 3: the aggregate, so it's not just federal governments, but state 182 00:09:45,280 --> 00:09:47,880 Speaker 3: governments as well. And there's no doubt that state governments 183 00:09:47,920 --> 00:09:52,160 Speaker 3: have been adding significantly to public demand. If we just 184 00:09:52,200 --> 00:09:55,520 Speaker 3: look at the federal government, you know, clearly they would 185 00:09:55,520 --> 00:09:58,160 Speaker 3: prefer to have stronger polls. They've still got quite a 186 00:09:58,200 --> 00:10:01,000 Speaker 3: bit of time before they need to go to an election, 187 00:10:01,400 --> 00:10:03,120 Speaker 3: so there's a little bit of time before you start 188 00:10:03,120 --> 00:10:06,520 Speaker 3: getting some of that electioneering. But they are adding to 189 00:10:07,320 --> 00:10:11,320 Speaker 3: demand in the economy. I think an interesting aspect of 190 00:10:11,360 --> 00:10:13,360 Speaker 3: this though, when you think about the public debate that 191 00:10:13,360 --> 00:10:17,040 Speaker 3: we've had, Yes, they're adding to public demand, therefore inherently 192 00:10:17,120 --> 00:10:20,120 Speaker 3: adding to inflation. But as we've discussed, if we took 193 00:10:20,120 --> 00:10:22,840 Speaker 3: public spending out, this economy would be in a recession. 194 00:10:23,640 --> 00:10:26,280 Speaker 3: And the Reserve Bank has taken quite a different path 195 00:10:26,320 --> 00:10:29,520 Speaker 3: from other central banks, hasn't raised rates by as much, 196 00:10:30,160 --> 00:10:33,400 Speaker 3: accepting that inflation will take longer to come back to target, 197 00:10:33,760 --> 00:10:36,000 Speaker 3: but trying not to do too much damage to the 198 00:10:36,080 --> 00:10:38,719 Speaker 3: labor market. And I think if we took our all 199 00:10:38,720 --> 00:10:41,079 Speaker 3: government spending from the economy, we would be really in 200 00:10:41,440 --> 00:10:44,640 Speaker 3: a quite a deep recession. Inflation would come down faster, 201 00:10:45,080 --> 00:10:46,920 Speaker 3: but at what costs. The cost of that would be 202 00:10:46,960 --> 00:10:48,040 Speaker 3: higher and unemployment. 203 00:10:48,960 --> 00:10:49,120 Speaker 1: Jo. 204 00:10:49,240 --> 00:10:52,440 Speaker 2: These are confronting numbers, but I think as you've described it, 205 00:10:52,480 --> 00:10:55,360 Speaker 2: they really do apply to how we all feel, and 206 00:10:55,400 --> 00:10:58,000 Speaker 2: it's great to get your perspective and feel better informed 207 00:10:58,000 --> 00:10:59,200 Speaker 2: about the situation we're in. 208 00:10:59,559 --> 00:11:01,520 Speaker 1: So thank you for joining us to talk to Fear 209 00:11:01,559 --> 00:11:01,920 Speaker 1: and Greed. 210 00:11:02,360 --> 00:11:04,600 Speaker 3: It's been my pleasure and I'm sorry it's not a 211 00:11:04,640 --> 00:11:07,160 Speaker 3: more upbeat message, but I think if we can get 212 00:11:07,200 --> 00:11:10,520 Speaker 3: on top of this inflation story, hopefully in twenty twenty five, 213 00:11:10,559 --> 00:11:13,320 Speaker 3: we're talking about cutting rates and easing some of that 214 00:11:13,360 --> 00:11:15,160 Speaker 3: cost of living pressure for Australians. 215 00:11:15,600 --> 00:11:18,520 Speaker 2: Thank you, Joe. That was Joe Masters, chief economist at 216 00:11:18,559 --> 00:11:21,319 Speaker 2: Baron Joey. This is the Fear and Greed Business Interview. 217 00:11:21,480 --> 00:11:23,680 Speaker 2: Join us every morning for the full episode of Fear 218 00:11:23,720 --> 00:11:26,320 Speaker 2: and Greed Daily business news for people who make their 219 00:11:26,360 --> 00:11:33,680 Speaker 2: own decisions. I'm Adam lang Enjoy your day.