1 00:00:08,619 --> 00:00:11,800 Sean Aylmer: Welcome to Fear and Greed: The Week Ahead. Now, normally we 2 00:00:11,800 --> 00:00:13,910 Sean Aylmer: take a look at the big events, reports and releases 3 00:00:13,910 --> 00:00:15,540 Sean Aylmer: coming up this week and have a look at last 4 00:00:15,540 --> 00:00:18,630 Sean Aylmer: week as well. But today we're going to focus on 5 00:00:18,630 --> 00:00:21,730 Sean Aylmer: how the economy made it through 2021 and what to 6 00:00:21,730 --> 00:00:25,140 Sean Aylmer: expect in 2022. As always on a Monday, I'm joined 7 00:00:25,140 --> 00:00:28,510 Sean Aylmer: by economist Stephen Koukoulas. You'll find him at thekouk. com 8 00:00:28,610 --> 00:00:31,300 Sean Aylmer: on Twitter using the handle @ TheKouk, T H E K 9 00:00:31,300 --> 00:00:34,599 Sean Aylmer: O U K. Stephen for the final time in 2021, 10 00:00:34,600 --> 00:00:35,140 Sean Aylmer: good morning. 11 00:00:35,470 --> 00:00:37,210 Stephen Koukoulas: Good morning, Sean and what a year it's been. 12 00:00:37,540 --> 00:00:40,080 Sean Aylmer: What a year. And how about, I mean, we're talking about the 13 00:00:40,080 --> 00:00:42,530 Sean Aylmer: whole year, but we have to start with last week. 14 00:00:42,580 --> 00:00:43,220 Sean Aylmer: What a cracker. 15 00:00:43,590 --> 00:00:47,879 Stephen Koukoulas: Oh, we ended 2021 with a jobs report that... Okay 16 00:00:47,880 --> 00:00:49,130 Stephen Koukoulas: we knew it was going to be a strong number 17 00:00:49,130 --> 00:00:52,420 Stephen Koukoulas: because the ACT, New South Wales and Victoria were opening 18 00:00:52,420 --> 00:00:57,510 Stephen Koukoulas: up, but we saw 366, 000 increase in employment. The unemployment 19 00:00:57,510 --> 00:01:00,820 Stephen Koukoulas: rate fell, the underemployment rate fell, and all of the 20 00:01:00,820 --> 00:01:03,140 Stephen Koukoulas: jobs that were lost during that Delta lockdown in the 21 00:01:03,140 --> 00:01:06,680 Stephen Koukoulas: September quarter have been regained and then some, so it 22 00:01:06,680 --> 00:01:08,619 Stephen Koukoulas: was a great end to the year with a... It's 23 00:01:08,620 --> 00:01:10,840 Stephen Koukoulas: always lovely to see good jobs numbers, and these were 24 00:01:10,940 --> 00:01:11,819 Stephen Koukoulas: better than good. 25 00:01:11,819 --> 00:01:14,770 Sean Aylmer: So if you were the Reserve Bank on the 1st 26 00:01:14,770 --> 00:01:17,509 Sean Aylmer: of January, and you could pick where you wanted to 27 00:01:17,510 --> 00:01:20,259 Sean Aylmer: be at the end of the year, do you think they'd take 28 00:01:20,260 --> 00:01:21,030 Sean Aylmer: where we are now? 29 00:01:21,450 --> 00:01:25,000 Stephen Koukoulas: Oh, no doubt. Yes. And that's even, no one forecast 30 00:01:25,000 --> 00:01:28,809 Stephen Koukoulas: the Delta lockdowns to occur. So even though everybody like 31 00:01:28,810 --> 00:01:31,210 Stephen Koukoulas: we are right now, wondering what's going to be happening 32 00:01:31,220 --> 00:01:33,830 Stephen Koukoulas: with all the different variants that may or may not 33 00:01:33,830 --> 00:01:36,430 Stephen Koukoulas: emerge over the next few months. But I think they'd 34 00:01:36,430 --> 00:01:39,360 Stephen Koukoulas: actually take the fact that the economy has got through 35 00:01:39,790 --> 00:01:43,069 Stephen Koukoulas: 2021 in pretty good shape. Clearly we don't have the December quarter 36 00:01:43,080 --> 00:01:45,310 Stephen Koukoulas: GDP numbers yet, but when they come out, they'll show 37 00:01:45,310 --> 00:01:47,950 Stephen Koukoulas: that the economy grew through the course of the year, 38 00:01:47,950 --> 00:01:52,540 Stephen Koukoulas: that the labor market expanded, that the unemployment rate trended down. 39 00:01:52,580 --> 00:01:54,890 Stephen Koukoulas: And even if we look at some of the other 40 00:01:54,890 --> 00:01:57,770 Stephen Koukoulas: indicators that are dead to the RBAs heart nets, inflation, 41 00:01:57,770 --> 00:02:00,990 Stephen Koukoulas: and wages, they are picking up. Now they're not accelerating 42 00:02:01,540 --> 00:02:04,710 Stephen Koukoulas: at an alarming pace, but they're certainly off the lows. 43 00:02:05,010 --> 00:02:07,060 Stephen Koukoulas: Pardon the pun with Philip Lowes, RBA eight Governor, but 44 00:02:07,060 --> 00:02:08,919 Stephen Koukoulas: they're starting to edge higher. 45 00:02:09,410 --> 00:02:11,790 Sean Aylmer: What about the fiscal position? 46 00:02:11,800 --> 00:02:15,250 Stephen Koukoulas: Oh, look, yes. We had the budget update. I reckon 47 00:02:15,360 --> 00:02:17,980 Stephen Koukoulas: it was a little disappointing because the budget deficits are 48 00:02:17,980 --> 00:02:20,370 Stephen Koukoulas: still big, not only in the three or four years 49 00:02:20,370 --> 00:02:24,070 Stephen Koukoulas: of the forward estimates. So 99 billion this year, 99 50 00:02:24,070 --> 00:02:27,239 Stephen Koukoulas: billion next year, 84 billion the year after. They are 51 00:02:27,240 --> 00:02:30,520 Stephen Koukoulas: big numbers. But we look at the MyInfo documents and 52 00:02:30,520 --> 00:02:36,169 Stephen Koukoulas: they've got budget deficits right out to 2031, 32. And with 53 00:02:36,169 --> 00:02:38,430 Stephen Koukoulas: the economy struggle, look I'm of the view that we 54 00:02:38,430 --> 00:02:41,180 Stephen Koukoulas: need fiscal policy to play a role in managing the 55 00:02:41,180 --> 00:02:43,760 Stephen Koukoulas: cycle. When the economy's weak, yes, run a budget deficit. 56 00:02:43,760 --> 00:02:46,730 Stephen Koukoulas: I wouldn't quibble with the order of magnitude of stimulus 57 00:02:46,730 --> 00:02:49,690 Stephen Koukoulas: that was delivered. But now the economy's recovering I thought 58 00:02:49,690 --> 00:02:51,630 Stephen Koukoulas: it would've been a great chance for the treasurer to 59 00:02:51,630 --> 00:02:55,639 Stephen Koukoulas: come out and say, " Look, we are responsible economic managers. 60 00:02:55,980 --> 00:02:58,530 Stephen Koukoulas: We stimulated when we needed to. Now we've got a 61 00:02:58,530 --> 00:03:01,200 Stephen Koukoulas: strong economy. We're just going to be a little more 62 00:03:01,200 --> 00:03:03,590 Stephen Koukoulas: cautious and start the process of budget repair." 63 00:03:04,060 --> 00:03:06,620 Sean Aylmer: Hmm. It'll be interesting. I mean, so if the election 64 00:03:06,620 --> 00:03:09,850 Sean Aylmer: is held in May next year and the federal government 65 00:03:09,850 --> 00:03:13,090 Sean Aylmer: has sort of, it sounds like penciled in a budget 66 00:03:13,090 --> 00:03:15,970 Sean Aylmer: for the end of April, that'll be a really interesting 67 00:03:15,970 --> 00:03:19,470 Sean Aylmer: document because if the election is fought over economic management, 68 00:03:19,960 --> 00:03:22,410 Sean Aylmer: how much can government go out and opposition go out 69 00:03:22,410 --> 00:03:23,329 Sean Aylmer: and say, we're going to spend. 70 00:03:23,639 --> 00:03:27,080 Stephen Koukoulas: Yes. I don't think that either of them should, or 71 00:03:27,240 --> 00:03:29,730 Stephen Koukoulas: probably will at the end of the day, because look, and 72 00:03:29,910 --> 00:03:32,920 Stephen Koukoulas: I'm not a deficit fanatic or anything like that, but 73 00:03:33,500 --> 00:03:34,600 Stephen Koukoulas: I've been around long enough to realize- 74 00:03:34,600 --> 00:03:37,130 Sean Aylmer: Stephen, we've told this story before. You are the one 75 00:03:37,140 --> 00:03:39,100 Sean Aylmer: that said to Peter Costello we're going to lock up 76 00:03:39,100 --> 00:03:40,730 Sean Aylmer: one day. And I remember sitting next to you and 77 00:03:40,730 --> 00:03:42,080 Sean Aylmer: you said, " So what are you going to do when 78 00:03:42,080 --> 00:03:43,630 Sean Aylmer: you get the deficit down to zero?" And he was 79 00:03:43,630 --> 00:03:45,230 Sean Aylmer: just, flummoxed. He was like, " Ah, ah." 80 00:03:45,230 --> 00:03:49,001 Stephen Koukoulas: When you've got no debt left, that's right. But- (crosstalk) 81 00:03:49,001 --> 00:03:49,002 Sean Aylmer: No debt, no debt. Yes. 82 00:03:49,002 --> 00:03:52,220 Stephen Koukoulas: But we've got a trillion dollars of debt in these 83 00:03:52,220 --> 00:03:56,150 Stephen Koukoulas: documents. And we're okay with that, but we're vulnerable. The 84 00:03:56,150 --> 00:03:58,310 Stephen Koukoulas: bigger the debt you have, the more vulnerable you are 85 00:03:58,310 --> 00:04:00,480 Stephen Koukoulas: to some sort of shock coming along. And that could 86 00:04:00,480 --> 00:04:03,360 Stephen Koukoulas: be in the form of higher interest rates or higher 87 00:04:03,360 --> 00:04:05,360 Stephen Koukoulas: inflation or something coming along in the next couple of 88 00:04:05,670 --> 00:04:07,250 Stephen Koukoulas: years. Now, not next week or next month, but in 89 00:04:07,250 --> 00:04:08,870 Stephen Koukoulas: the next few years, if you've got a trillion dollars 90 00:04:08,870 --> 00:04:11,690 Stephen Koukoulas: of debt, it's much harder to manage that as if 91 00:04:11,690 --> 00:04:14,590 Stephen Koukoulas: you've got half a trillion dollars of debt. So I think 92 00:04:14,590 --> 00:04:16,590 Stephen Koukoulas: we, and it'll be a long road to repair the 93 00:04:16,760 --> 00:04:19,560 Stephen Koukoulas: budget. What happened during this COVID lockdown to the budget 94 00:04:19,570 --> 00:04:23,210 Stephen Koukoulas: was huge. And as I said, it was appropriate. But 95 00:04:23,210 --> 00:04:26,839 Stephen Koukoulas: to repair the budget is a long process and you start 96 00:04:26,839 --> 00:04:31,089 Stephen Koukoulas: chipping away and Mr. Frydenberg didn't do that so in 97 00:04:31,089 --> 00:04:32,950 Stephen Koukoulas: an election campaign, I think Labor's got to be very 98 00:04:32,950 --> 00:04:37,330 Stephen Koukoulas: careful too. They can't go out with very generous spending 99 00:04:37,330 --> 00:04:40,240 Stephen Koukoulas: policies because they will just be adding to the already 100 00:04:40,240 --> 00:04:41,300 Stephen Koukoulas: wide budget deficit. 101 00:04:41,860 --> 00:04:45,750 Sean Aylmer: Is the biggest risk to the economy in 2022 Omicron 102 00:04:45,790 --> 00:04:47,929 Sean Aylmer: or not Omicron, but coronavirus, generally? 103 00:04:48,240 --> 00:04:50,070 Stephen Koukoulas: It is. And as we've seen in the last two 104 00:04:50,070 --> 00:04:53,550 Stephen Koukoulas: years, when it unleashes and we have health consequences and 105 00:04:53,550 --> 00:04:57,260 Stephen Koukoulas: therefore economic consequences, GDP in September quarter felt very sharply 106 00:04:57,450 --> 00:05:00,030 Stephen Koukoulas: don't forget, on the back of that Delta variant. So 107 00:05:00,820 --> 00:05:04,089 Stephen Koukoulas: whatever variant comes along, if it's managed and we live with 108 00:05:04,089 --> 00:05:06,940 Stephen Koukoulas: it and we put masks on and it doesn't create 109 00:05:06,940 --> 00:05:10,120 Stephen Koukoulas: huge health problems, well, that's probably okay. But if we 110 00:05:10,120 --> 00:05:13,700 Stephen Koukoulas: do actually have a severe strain coming through, then of 111 00:05:13,700 --> 00:05:15,920 Stephen Koukoulas: course it's all bets off. But for now I think 112 00:05:15,920 --> 00:05:18,479 Stephen Koukoulas: we're getting better at living with it. Our vaccination rates 113 00:05:18,480 --> 00:05:22,640 Stephen Koukoulas: are terrific, in the 90% region, in most parts of the 114 00:05:22,640 --> 00:05:24,789 Stephen Koukoulas: country. And that's a good thing and booster shots now. 115 00:05:24,790 --> 00:05:27,040 Stephen Koukoulas: So look, I don't know much about health, but I 116 00:05:27,320 --> 00:05:30,299 Stephen Koukoulas: do what the health experts tell me. And that gives 117 00:05:30,300 --> 00:05:31,770 Stephen Koukoulas: me a hint of optimism that we're not going to 118 00:05:31,770 --> 00:05:35,080 Stephen Koukoulas: have the diabolical health consequences that we've seen overseas in 119 00:05:35,080 --> 00:05:35,910 Stephen Koukoulas: so many countries. 120 00:05:36,270 --> 00:05:39,020 Sean Aylmer: And then finally, then the question that most of us 121 00:05:39,080 --> 00:05:40,880 Sean Aylmer: are worried about is interest rates. What's going to happen 122 00:05:40,880 --> 00:05:41,890 Sean Aylmer: to interest rates this year? 123 00:05:42,350 --> 00:05:45,380 Stephen Koukoulas: It's a good news story. They're going up. So if 124 00:05:45,380 --> 00:05:45,540 Stephen Koukoulas: you've got a mortgage- 125 00:05:45,570 --> 00:05:48,060 Sean Aylmer: Yes, I'm happy about that. I've got a massive mortgage, Stephen. I don't know about you. 126 00:05:48,570 --> 00:05:50,070 Stephen Koukoulas: We've got a mortgage. It's not much fun, but it's 127 00:05:50,070 --> 00:05:53,890 Stephen Koukoulas: because the economy's recovering. The interest rates aren't being set 128 00:05:53,890 --> 00:05:56,430 Stephen Koukoulas: at this 0.1% for the catch rate, because the economy's 129 00:05:56,430 --> 00:05:59,300 Stephen Koukoulas: great. No. They're being put there because we did have 130 00:05:59,300 --> 00:06:01,860 Stephen Koukoulas: a recession. We did have a jump in unemployment and 131 00:06:01,860 --> 00:06:04,650 Stephen Koukoulas: that's why the RBA did it. So rate hikes through 132 00:06:04,650 --> 00:06:06,919 Stephen Koukoulas: the course of 2022. Yeah. They're probably going to happen. 133 00:06:06,920 --> 00:06:09,650 Stephen Koukoulas: The future's market's certainly pricing it in. Look and we're not 134 00:06:09,650 --> 00:06:14,089 Stephen Koukoulas: talking multiple rate hikes to two, three or 4%. No, no, 135 00:06:14,089 --> 00:06:17,290 Stephen Koukoulas: no. It'll be a gentle approach to sort of just 136 00:06:17,300 --> 00:06:21,010 Stephen Koukoulas: taking away some of this incredible monetary policy stimulus. So 137 00:06:21,430 --> 00:06:23,160 Stephen Koukoulas: this time next year, I think we'll be having a 138 00:06:23,160 --> 00:06:28,210 Stephen Koukoulas: cash rate somewhere around about 0. 75, maybe 1%. And that'll 139 00:06:28,210 --> 00:06:31,150 Stephen Koukoulas: be because the economy's strong, wages are lifting and inflation's 140 00:06:31,150 --> 00:06:31,529 Stephen Koukoulas: up a bit. 141 00:06:32,070 --> 00:06:33,950 Sean Aylmer: Stephen as always, thank you for that. And thank you 142 00:06:33,950 --> 00:06:35,580 Sean Aylmer: for the year and enjoy the next couple of weeks. 143 00:06:35,580 --> 00:06:37,360 Sean Aylmer: I know over the holiday season, you're having a few 144 00:06:37,360 --> 00:06:39,660 Sean Aylmer: weeks off, so I hope it goes well and thank 145 00:06:39,660 --> 00:06:40,300 Sean Aylmer: you very much. 146 00:06:40,440 --> 00:06:42,869 Stephen Koukoulas: Thank you. I'll be watching a lot of cricket and 147 00:06:42,870 --> 00:06:44,280 Stephen Koukoulas: not doing much else. Thank you, Sean. 148 00:06:44,380 --> 00:06:47,390 Sean Aylmer: That's pretty good. That was economist Stephen Koukoulas, better known 149 00:06:47,390 --> 00:06:50,110 Sean Aylmer: as TheKouk. You can find him at thekouk. com and 150 00:06:50,110 --> 00:06:53,040 Sean Aylmer: follow him on Twitter using the handle, @ TheKouk. I'm Sean 151 00:06:53,140 --> 00:06:55,790 Sean Aylmer: Aylmer, and for the final time this year, that was Fear 152 00:06:56,100 --> 00:06:57,390 Sean Aylmer: and Greed: The Week Ahead.