1 00:00:04,019 --> 00:00:07,440 Jennifer Duke: Welcome to the Fear and Greed Business interview. I'm Jennifer Duke. 2 00:00:07,650 --> 00:00:12,150 Jennifer Duke: The Australian economy expanded 0.4% over the June quarter, and 3 00:00:12,150 --> 00:00:15,540 Jennifer Duke: it's up 2.1% on an annual basis, but on a 4 00:00:15,540 --> 00:00:18,329 Jennifer Duke: per capita basis, we're in a recession, and the government's 5 00:00:18,329 --> 00:00:20,370 Jennifer Duke: warning it's going to get worse from here on out. 6 00:00:20,670 --> 00:00:23,460 Jennifer Duke: Here to discuss what this all means is Diana Mousina, 7 00:00:23,520 --> 00:00:26,549 Jennifer Duke: Deputy Chief Economist at AMP. Diana, welcome back to Fear 8 00:00:26,550 --> 00:00:26,999 Jennifer Duke: and Greed. 9 00:00:27,660 --> 00:00:29,399 Diana Mousina: Thank you, Jen. It's a pleasure to be back. 10 00:00:30,059 --> 00:00:31,859 Jennifer Duke: So can you break that stat down for us a 11 00:00:31,860 --> 00:00:34,049 Jennifer Duke: little bit? What was behind the result, and how did 12 00:00:34,049 --> 00:00:35,579 Jennifer Duke: it compare to what you were expecting? 13 00:00:36,360 --> 00:00:40,979 Diana Mousina: We actually saw quite large divergences in the components of GDP. 14 00:00:41,970 --> 00:00:44,040 Diana Mousina: If you break it down, it will show you that 15 00:00:44,040 --> 00:00:48,809 Diana Mousina: consumer spending rose only 0.1%, which is extremely weak. And there 16 00:00:48,900 --> 00:00:52,289 Diana Mousina: was a huge contribution from net exports. Export growth was 17 00:00:52,289 --> 00:00:55,860 Diana Mousina: much stronger than import growth, and the government added a 18 00:00:55,860 --> 00:01:00,180 Diana Mousina: decent contribution as well to June quarter growth. And there 19 00:01:00,180 --> 00:01:03,630 Diana Mousina: was a large fall in inventories. So what do you 20 00:01:03,630 --> 00:01:06,479 Diana Mousina: make from all of this? I suppose the good news 21 00:01:06,480 --> 00:01:10,829 Diana Mousina: is that domestic demand is still holding up, thanks to 22 00:01:10,980 --> 00:01:15,720 Diana Mousina: government spending, the consumer contributing a little bit, and business investment, 23 00:01:15,720 --> 00:01:18,600 Diana Mousina: I've forgot to mention, was also pretty good. And the 24 00:01:18,600 --> 00:01:22,589 Diana Mousina: forward-looking indicators for business investment is still holding up, but 25 00:01:22,590 --> 00:01:25,350 Diana Mousina: the economy has clearly slowed from its highs last year, 26 00:01:25,830 --> 00:01:28,949 Diana Mousina: and we expect that there will be some further slowing 27 00:01:28,949 --> 00:01:32,729 Diana Mousina: from here from the impacts of tighter interest rates. That 28 00:01:32,730 --> 00:01:36,958 Diana Mousina: per capita recession may feel real to some people, but 29 00:01:36,959 --> 00:01:38,880 Diana Mousina: at the same time, we have had a very strong 30 00:01:38,880 --> 00:01:42,000 Diana Mousina: labour market in the past 12 months. So it's difficult 31 00:01:42,000 --> 00:01:44,969 Diana Mousina: to say that conditions in the economy are weak. There 32 00:01:44,969 --> 00:01:48,330 Diana Mousina: are obviously pockets of weakness, but the unemployment rate is 33 00:01:48,330 --> 00:01:51,990 Diana Mousina: still around a 50-year low. So that per capita recession, 34 00:01:51,990 --> 00:01:55,410 Diana Mousina: I think will just generate more headlines than it's actually worth. 35 00:01:55,860 --> 00:01:57,840 Jennifer Duke: That makes me feel a little bit more positive. So 36 00:01:57,840 --> 00:02:01,500 Jennifer Duke: that's nice, to be honest. So Treasurer Jim Chalmers did 37 00:02:01,500 --> 00:02:03,899 Jennifer Duke: say at his press conference yesterday that we're on that 38 00:02:03,900 --> 00:02:06,119 Jennifer Duke: pretty steady footing, and like you said, we're sort of 39 00:02:06,119 --> 00:02:08,550 Jennifer Duke: expecting a bit of a slowing. How concerned do we 40 00:02:08,550 --> 00:02:11,340 Jennifer Duke: need to be, though, about China on the impact for outlook? 41 00:02:12,990 --> 00:02:15,570 Diana Mousina: Well, if you look at the export numbers, you wouldn't 42 00:02:15,570 --> 00:02:19,290 Diana Mousina: even think that China was a problem to Australia because 43 00:02:19,559 --> 00:02:22,259 Diana Mousina: export growth was still extremely strong. I mean, China is 44 00:02:22,260 --> 00:02:24,630 Diana Mousina: obviously only part of the story, but they are our 45 00:02:24,630 --> 00:02:28,230 Diana Mousina: major trading partner. If you look at things like the 46 00:02:28,230 --> 00:02:30,930 Diana Mousina: iron ore price though, other commodity prices, you haven't really 47 00:02:30,930 --> 00:02:33,870 Diana Mousina: seen much of a weakening in those prices, which to 48 00:02:33,870 --> 00:02:37,709 Diana Mousina: me suggests that for our key exports to China around 49 00:02:37,710 --> 00:02:42,119 Diana Mousina: commodities, there is still decent demand from China. Maybe not 50 00:02:42,119 --> 00:02:44,550 Diana Mousina: as strong as it was 10 years ago, but it's 51 00:02:44,550 --> 00:02:48,839 Diana Mousina: still enough to support Australian growth. The part of GDP 52 00:02:48,840 --> 00:02:51,960 Diana Mousina: that I'm most worried about is around the consumer, and 53 00:02:51,960 --> 00:02:55,590 Diana Mousina: I think if we were to have a recession next year or a significant downturn, 54 00:02:55,590 --> 00:02:57,840 Diana Mousina: the consumer would be the one that drags us there. 55 00:02:58,169 --> 00:03:00,990 Jennifer Duke: And obviously, we've had a couple of months since June, 56 00:03:00,990 --> 00:03:02,910 Jennifer Duke: so we're already a little bit further into that than 57 00:03:02,910 --> 00:03:05,610 Jennifer Duke: perhaps these figures are suggesting. Has there been more of 58 00:03:05,610 --> 00:03:07,530 Jennifer Duke: a slowing in that consumer element since then? 59 00:03:08,160 --> 00:03:11,280 Diana Mousina: Well, as of the June quarter, discretionary spending had fallen 60 00:03:11,370 --> 00:03:15,388 Diana Mousina: by three consecutive quarters, and that's only up to June. 61 00:03:15,630 --> 00:03:18,299 Diana Mousina: The retail data over the past few months has been 62 00:03:18,330 --> 00:03:21,809 Diana Mousina: pretty bad. And that suggests to me that the GDP 63 00:03:21,810 --> 00:03:25,110 Diana Mousina: figures will continue to show weakness in the consumer. The 64 00:03:25,110 --> 00:03:28,108 Diana Mousina: savings rate is likely to keep coming down because consumers 65 00:03:28,169 --> 00:03:30,779 Diana Mousina: will continue to draw on those savings. So I think 66 00:03:30,780 --> 00:03:33,269 Diana Mousina: that we will see some further weakness in the consumer. And 67 00:03:33,360 --> 00:03:35,730 Diana Mousina: the sentiment numbers don't really fill me with any joy 68 00:03:35,820 --> 00:03:38,730 Diana Mousina: either because consumers are still saying that they don't feel 69 00:03:38,730 --> 00:03:40,200 Diana Mousina: very optimistic about the outlook. 70 00:03:40,620 --> 00:03:42,810 Jennifer Duke: Definitely. And I think the Reserve Bank was looking pretty 71 00:03:42,810 --> 00:03:45,330 Jennifer Duke: closely at those figures when they met on Tuesday and 72 00:03:45,330 --> 00:03:49,530 Jennifer Duke: kept rates on hold. Given the GDP data and that 73 00:03:49,710 --> 00:03:52,049 Jennifer Duke: thought that you have around the consumer spending, do you 74 00:03:52,049 --> 00:03:54,180 Jennifer Duke: have any views on where rates might be headed next? 75 00:03:54,990 --> 00:03:59,339 Diana Mousina: I think that the likelihood of a pause to interest 76 00:03:59,340 --> 00:04:02,429 Diana Mousina: rates from here is extremely high. You would really need 77 00:04:02,429 --> 00:04:06,629 Diana Mousina: to see a change in the inflation or wages environment 78 00:04:06,630 --> 00:04:09,120 Diana Mousina: to justify another rate rise from here. Given that the 79 00:04:09,120 --> 00:04:12,000 Diana Mousina: RBA has been on hold for three consecutive months, there 80 00:04:12,000 --> 00:04:15,120 Diana Mousina: is no real need for them to hike interest rates. Again, 81 00:04:15,120 --> 00:04:18,240 Diana Mousina: things are moving in line with their projections in terms 82 00:04:18,240 --> 00:04:22,440 Diana Mousina: of GDP growth. Inflation's actually coming in better than their forecast. 83 00:04:22,650 --> 00:04:25,409 Diana Mousina: If we did see a renewed surge in wages or 84 00:04:25,410 --> 00:04:28,679 Diana Mousina: the labour market continuing to be extremely tight, then maybe 85 00:04:28,680 --> 00:04:31,589 Diana Mousina: that would justify another rate rise from here. So there is 86 00:04:31,770 --> 00:04:34,680 Diana Mousina: the possibility of another rate rise in the next few months, 87 00:04:34,890 --> 00:04:36,630 Diana Mousina: but it's not our base case. And we think that 88 00:04:36,630 --> 00:04:39,750 Diana Mousina: the next move will be a cash rate cut sometime 89 00:04:40,050 --> 00:04:42,058 Diana Mousina: in the first six months of 2024. 90 00:04:42,630 --> 00:04:44,459 Jennifer Duke: Stay with me, Diana, we'll be back in a minute. 91 00:04:50,760 --> 00:04:55,080 Jennifer Duke: I'm speaking to Diana Mousina, Deputy Chief Economist at AMP. The 92 00:04:55,080 --> 00:04:58,678 Jennifer Duke: home building industry is usually a pretty solid contributor to GDP, 93 00:04:58,678 --> 00:05:00,960 Jennifer Duke: but it kind of isn't actually anymore based on the 94 00:05:00,960 --> 00:05:03,389 Jennifer Duke: looks of the data yesterday. So do you think it's 95 00:05:03,389 --> 00:05:04,979 Jennifer Duke: going to pick up again, or are these sort of 96 00:05:04,980 --> 00:05:07,320 Jennifer Duke: long-haul issues in the industry that are playing out? 97 00:05:09,000 --> 00:05:12,599 Diana Mousina: We're in a rising-rate environment. It is difficult for residential 98 00:05:12,600 --> 00:05:17,190 Diana Mousina: construction to be solid, and that will continue to be 99 00:05:17,190 --> 00:05:20,250 Diana Mousina: the case. If we look at the building approvals data, 100 00:05:20,250 --> 00:05:24,990 Diana Mousina: it's not very strong either, which suggests that new housing 101 00:05:24,990 --> 00:05:30,029 Diana Mousina: construction will still probably remain weak, but the only, I guess, 102 00:05:30,029 --> 00:05:33,360 Diana Mousina: source of upside is potentially the government trying to focus 103 00:05:33,360 --> 00:05:36,839 Diana Mousina: on lifting housing supply, that could result in some more construction, 104 00:05:36,839 --> 00:05:38,250 Diana Mousina: which would add to GDP growth. 105 00:05:39,029 --> 00:05:41,760 Jennifer Duke: Definitely. And the other big change that Jim Chalmers has 106 00:05:41,760 --> 00:05:45,000 Jennifer Duke: announced yesterday was a new productivity commission chair, Danny Wood from 107 00:05:45,000 --> 00:05:47,279 Jennifer Duke: the Grattan Institute. What do you think is her big 108 00:05:47,279 --> 00:05:50,159 Jennifer Duke: challenge in terms of tackling the big productivity problem? 109 00:05:50,849 --> 00:05:55,259 Diana Mousina: Well, productivity is really the buzzword lately because it looks 110 00:05:55,410 --> 00:05:59,070 Diana Mousina: so dreadful when you look at the data. And it leads a lot 111 00:05:59,070 --> 00:06:01,529 Diana Mousina: of people to ask me, "Are we really more unproductive 112 00:06:01,529 --> 00:06:03,750 Diana Mousina: than we've ever been?" And I don't really think that 113 00:06:03,750 --> 00:06:07,830 Diana Mousina: that's the case because there is still some, I think 114 00:06:08,099 --> 00:06:10,710 Diana Mousina: postpandemic issues, that are filtering through the data in terms 115 00:06:10,710 --> 00:06:13,710 Diana Mousina: of measuring productivity. But also, the very big increase in 116 00:06:13,710 --> 00:06:17,039 Diana Mousina: hours worked is keeping a lid on productivity growth, helping 117 00:06:17,039 --> 00:06:20,670 Diana Mousina: it to look extremely low. There are many issues that 118 00:06:20,670 --> 00:06:23,370 Diana Mousina: need to be addressed in the economy around productivity. So 119 00:06:23,370 --> 00:06:27,960 Diana Mousina: things like taxation reform, incentives for business investment, trying to 120 00:06:27,960 --> 00:06:32,130 Diana Mousina: lift business investment, what's the optimal rate of business tax rates, 121 00:06:32,160 --> 00:06:37,380 Diana Mousina: helping to increase education standards in the country, increasing housing supply, 122 00:06:37,650 --> 00:06:41,070 Diana Mousina: trying to get the right balance of population growth for 123 00:06:41,070 --> 00:06:44,309 Diana Mousina: the economy, given our infrastructure challenges, so there's kind of 124 00:06:44,309 --> 00:06:47,428 Diana Mousina: productivity issues in every single sector of the economy. So 125 00:06:47,428 --> 00:06:50,909 Diana Mousina: I don't envy her role at the moment because productivity 126 00:06:50,910 --> 00:06:54,089 Diana Mousina: is a long-term issue that needs to be addressed through 127 00:06:54,510 --> 00:06:58,859 Diana Mousina: reforms, but they take a long time. So we're not just magically going 128 00:06:58,860 --> 00:07:01,320 Diana Mousina: to see a lift in productivity growth, it will take 129 00:07:01,320 --> 00:07:02,910 Diana Mousina: some time for it to rise. 130 00:07:03,360 --> 00:07:06,150 Jennifer Duke: And Danny's been pretty vocal on that tax reform piece 131 00:07:06,150 --> 00:07:08,610 Jennifer Duke: and the need to get a bit of an overhaul 132 00:07:08,610 --> 00:07:11,219 Jennifer Duke: in the GST space and bring us to it, maybe 133 00:07:11,219 --> 00:07:13,290 Jennifer Duke: a bit of a new horizon. Do you think that 134 00:07:13,290 --> 00:07:15,450 Jennifer Duke: message is going to be listened to by the government? 135 00:07:15,450 --> 00:07:17,460 Jennifer Duke: Are you sort of on the tax reform side? 136 00:07:18,210 --> 00:07:21,239 Diana Mousina: Well, economists usually like tax reform, so I think I 137 00:07:21,240 --> 00:07:25,230 Diana Mousina: have to say yes because taxation reform tries to reduce 138 00:07:25,230 --> 00:07:27,959 Diana Mousina: some inefficiencies in the system and ultimately try and make 139 00:07:28,289 --> 00:07:32,670 Diana Mousina: the system fairer and get rid of taxes that aren't 140 00:07:32,670 --> 00:07:38,190 Diana Mousina: benefiting the economy. And I suppose if they've appointed her 141 00:07:38,190 --> 00:07:41,160 Diana Mousina: as the new chair, then the government is serious about 142 00:07:41,160 --> 00:07:43,199 Diana Mousina: trying to tackle tax reform. So I really hope that 143 00:07:43,200 --> 00:07:45,030 Diana Mousina: it is something that they look into. 144 00:07:45,719 --> 00:07:48,329 Jennifer Duke: And I just want to go back to that per capita recession issue 145 00:07:48,360 --> 00:07:50,700 Jennifer Duke: as well, because clearly you said that it's going to 146 00:07:50,700 --> 00:07:52,650 Jennifer Duke: generate a lot of headlines but perhaps not as many 147 00:07:52,650 --> 00:07:55,770 Jennifer Duke: practical effects. Are you concerned at all about those headlines 148 00:07:55,770 --> 00:07:58,169 Jennifer Duke: and the way that they might impact people's perceptions on 149 00:07:58,440 --> 00:08:01,050 Jennifer Duke: population growth and migration settings? 150 00:08:02,610 --> 00:08:07,560 Diana Mousina: Bad news always sells, I think. And whenever you look 151 00:08:07,560 --> 00:08:09,990 Diana Mousina: up things around the economy, there's always someone predicting a 152 00:08:09,990 --> 00:08:14,099 Diana Mousina: crash or recession because I think sometimes it's often easier 153 00:08:14,099 --> 00:08:16,679 Diana Mousina: to be negative than it is just to say, "Well, 154 00:08:16,679 --> 00:08:19,559 Diana Mousina: things can just turn out okay and not be too 155 00:08:19,559 --> 00:08:23,459 Diana Mousina: strong or too weak, but just moderate." So I don't 156 00:08:23,459 --> 00:08:28,470 Diana Mousina: think it's helpful to get people worried about recessions. It's 157 00:08:28,500 --> 00:08:30,809 Diana Mousina: important to keep in mind that we could experience a 158 00:08:30,840 --> 00:08:33,300 Diana Mousina: downturn because we have had such a significant lift in 159 00:08:33,300 --> 00:08:37,350 Diana Mousina: interest rates that there will be some consequences of this 160 00:08:37,679 --> 00:08:39,809 Diana Mousina: and one of those consequences will be a slowing in 161 00:08:39,809 --> 00:08:41,879 Diana Mousina: GDP growth. Hopefully, we don't need to go down the 162 00:08:41,879 --> 00:08:45,150 Diana Mousina: path where GDP growth crashes, but it is important to 163 00:08:45,150 --> 00:08:47,610 Diana Mousina: be cognisant that we will have a further slowing in 164 00:08:47,610 --> 00:08:51,718 Diana Mousina: activity from here, but not necessarily to get people worried 165 00:08:51,719 --> 00:08:52,740 Diana Mousina: about the outlook. 166 00:08:53,309 --> 00:08:55,589 Jennifer Duke: And one of those other effects of high interest rates 167 00:08:55,590 --> 00:08:57,719 Jennifer Duke: that everyone always assumes is going to happen is a 168 00:08:57,719 --> 00:09:00,718 Jennifer Duke: very rapid drop in property prices, but it doesn't seem 169 00:09:00,720 --> 00:09:03,238 Jennifer Duke: like that's actually happening anymore. Have you been surprised about 170 00:09:03,240 --> 00:09:04,588 Jennifer Duke: what's going on in the property market? 171 00:09:05,309 --> 00:09:09,179 Diana Mousina: Extremely surprised, and a part of the reason is definitely 172 00:09:09,179 --> 00:09:11,969 Diana Mousina: around the tight rental market and the surge in population 173 00:09:11,969 --> 00:09:15,239 Diana Mousina: growth. I guess I didn't expect that population growth would 174 00:09:15,240 --> 00:09:18,779 Diana Mousina: rise at such a quick pace in a very concentrated 175 00:09:18,779 --> 00:09:22,199 Diana Mousina: number of quarters, I guess, or even months. I thought that 176 00:09:22,350 --> 00:09:25,380 Diana Mousina: our population growth numbers would've started to increase last year, 177 00:09:25,380 --> 00:09:27,660 Diana Mousina: but there was definitely a delay post the pandemic, and it 178 00:09:27,660 --> 00:09:31,799 Diana Mousina: all seems to be coming right now, and we just 179 00:09:31,799 --> 00:09:35,760 Diana Mousina: don't have the levels of supply to meet the demands 180 00:09:35,789 --> 00:09:39,690 Diana Mousina: of population growth. So that needs to be addressed. And 181 00:09:39,690 --> 00:09:41,760 Diana Mousina: I suppose the government is trying to address those housing 182 00:09:41,760 --> 00:09:45,208 Diana Mousina: supply issues, but the issue is that they just, if you want 183 00:09:45,210 --> 00:09:46,618 Diana Mousina: to build a house, it doesn't just happen in a 184 00:09:46,620 --> 00:09:50,460 Diana Mousina: day. It can take months, if not numerous months, if 185 00:09:50,460 --> 00:09:53,100 Diana Mousina: not close to a year. So that's sort of the 186 00:09:53,100 --> 00:09:55,710 Diana Mousina: issue. I really hope that the lift in housing supply 187 00:09:55,710 --> 00:09:58,620 Diana Mousina: can ease some of the tightness in the rental market, 188 00:09:59,070 --> 00:10:02,790 Diana Mousina: but the strength in the housing market is definitely surprising. Although 189 00:10:03,150 --> 00:10:06,389 Diana Mousina: I don't see the pace of growth that we've had 190 00:10:06,389 --> 00:10:08,250 Diana Mousina: over the past few months continuing, I think that we 191 00:10:08,250 --> 00:10:10,830 Diana Mousina: will see some softening in the pace of property price 192 00:10:10,830 --> 00:10:12,660 Diana Mousina: growth, especially coming into next year. 193 00:10:13,470 --> 00:10:15,840 Jennifer Duke: Definitely. Diana, thank you so much for talking to Fear 194 00:10:15,840 --> 00:10:16,320 Jennifer Duke: and Greed. 195 00:10:16,920 --> 00:10:17,490 Diana Mousina: Thank you. 196 00:10:18,090 --> 00:10:21,779 Jennifer Duke: And that was Diana Mousina, deputy chief economist at AMP Capital. 197 00:10:22,110 --> 00:10:24,509 Jennifer Duke: This is the Fear and Greed Business interview. Join us 198 00:10:24,509 --> 00:10:26,760 Jennifer Duke: every morning for the full episode of Fear and Greed, 199 00:10:26,820 --> 00:10:30,780 Jennifer Duke: Australia's best business podcast. I'm Jennifer Duke, economics correspondent for 200 00:10:30,780 --> 00:10:33,000 Jennifer Duke: Capital Brief, and in the chair for Sean Aylmer. Have 201 00:10:33,000 --> 00:10:33,600 Jennifer Duke: a nice day.