1 00:00:08,070 --> 00:00:11,459 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, and as 2 00:00:11,460 --> 00:00:15,180 Sean Aylmer: always, I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:15,180 --> 00:00:17,729 Sean Aylmer: at thekouk. com, T- H- E- K- O- U- K. 4 00:00:17,940 --> 00:00:22,080 Sean Aylmer: com, and on Twitter using the handle TheKouk. Stephen, good morning. 5 00:00:22,620 --> 00:00:23,610 Stephen Koukoulas: Good morning, Sean. 6 00:00:24,210 --> 00:00:28,170 Sean Aylmer: Well, quite the week really, last week. Plenty going on. 7 00:00:28,380 --> 00:00:33,989 Sean Aylmer: House prices, rate rises, fuel low talking, retail trade, huge 8 00:00:33,990 --> 00:00:37,470 Sean Aylmer: trade surpluses. How do you encapsulate all that in a 9 00:00:37,470 --> 00:00:38,550 Sean Aylmer: couple of minutes, Stephen? 10 00:00:39,150 --> 00:00:41,129 Stephen Koukoulas: Well, first of all, I've got the deep heat rubbed 11 00:00:41,130 --> 00:00:45,000 Stephen Koukoulas: into my bruises from the RBA shock decision. That was 12 00:00:45,000 --> 00:00:48,450 Stephen Koukoulas: painful. Look, I think, and I'm not the lone ranger, 13 00:00:48,450 --> 00:00:51,390 Stephen Koukoulas: so to some extent I'm comforted by not being the 14 00:00:51,390 --> 00:00:53,700 Stephen Koukoulas: only one who missed it, but look, the Reserve Bank 15 00:00:53,700 --> 00:00:56,220 Stephen Koukoulas: clearly, clearly has a bee in its bonnet about the 16 00:00:56,220 --> 00:00:58,950 Stephen Koukoulas: inflation momentum. It's not yet convinced that it's done enough 17 00:00:58,950 --> 00:01:03,930 Stephen Koukoulas: obviously, to get the inflation rate back to target " in 18 00:01:03,930 --> 00:01:07,170 Stephen Koukoulas: a reasonable time." And so they've thought, well, even though 19 00:01:07,170 --> 00:01:10,679 Stephen Koukoulas: there's evidence that the economy's slowing down, even though there's 20 00:01:10,680 --> 00:01:13,080 Stephen Koukoulas: evidence that the unemployment rate will probably pick up, and 21 00:01:13,080 --> 00:01:16,290 Stephen Koukoulas: importantly, inflation is falling, it's not falling fast enough. So 22 00:01:16,290 --> 00:01:20,759 Stephen Koukoulas: they delivered that extra rate hike. So 375 basis points 23 00:01:20,760 --> 00:01:24,510 Stephen Koukoulas: of hikes since May last year, and it's a really 24 00:01:24,660 --> 00:01:27,450 Stephen Koukoulas: aggressive move. But that said too, we did see evidence 25 00:01:27,450 --> 00:01:29,700 Stephen Koukoulas: of, well, mixed news on the economy. As you mentioned, 26 00:01:29,700 --> 00:01:32,459 Stephen Koukoulas: house prices, it sort of ticked up for the second 27 00:01:32,459 --> 00:01:36,869 Stephen Koukoulas: straight month in April. So that demand coming from population 28 00:01:36,870 --> 00:01:39,750 Stephen Koukoulas: growth is having an impact. But in terms of the 29 00:01:39,750 --> 00:01:43,290 Stephen Koukoulas: economy, the retail sales numbers were actually quite weak. Well 30 00:01:43,290 --> 00:01:46,350 Stephen Koukoulas: they rose 0. 4%, but if you adjust those numbers 31 00:01:46,350 --> 00:01:49,830 Stephen Koukoulas: for inflation, you're probably getting retail sales going backwards in 32 00:01:49,830 --> 00:01:52,500 Stephen Koukoulas: real term. So mixed news on the economy. But the 33 00:01:52,500 --> 00:01:56,310 Stephen Koukoulas: RBA, boy, they're really wanted to squeeze inflation out of 34 00:01:56,310 --> 00:01:56,910 Stephen Koukoulas: the economy. 35 00:01:57,480 --> 00:01:59,310 Sean Aylmer: Funny thing, of course, is that no matter what the 36 00:01:59,310 --> 00:02:02,520 Sean Aylmer: Reserve Bank does, the Federal Government can kind of wipe 37 00:02:02,520 --> 00:02:05,580 Sean Aylmer: out all its good or bad work with a few 38 00:02:05,580 --> 00:02:06,960 Sean Aylmer: policy changes tomorrow night. 39 00:02:07,470 --> 00:02:09,720 Stephen Koukoulas: Tomorrow night, the budget. Yes. And it's the first sort of 40 00:02:09,720 --> 00:02:12,240 Stephen Koukoulas: fully fledged budget, if you like, from the, well, I 41 00:02:12,240 --> 00:02:13,440 Stephen Koukoulas: was going to say the new government, they've been in 42 00:02:13,440 --> 00:02:15,630 Stephen Koukoulas: for almost a year, the Albanese Government with Treasurer Jim 43 00:02:15,630 --> 00:02:18,150 Stephen Koukoulas: Chalmers, he had what would be akin to a mini 44 00:02:18,150 --> 00:02:21,570 Stephen Koukoulas: budget in October last year, which was really just a 45 00:02:21,570 --> 00:02:23,730 Stephen Koukoulas: little bit of tinkering on a few of, if you 46 00:02:23,730 --> 00:02:26,010 Stephen Koukoulas: like, the easy policy decisions that they took to the 47 00:02:26,010 --> 00:02:28,260 Stephen Koukoulas: election. Tomorrow night, we're going to see some of the 48 00:02:28,320 --> 00:02:31,320 Stephen Koukoulas: harder decisions. But a couple of things to note from 49 00:02:31,320 --> 00:02:36,540 Stephen Koukoulas: that: the economy has been probably a little stronger than 50 00:02:36,540 --> 00:02:39,030 Stephen Koukoulas: they were assuming in the October budget, and that means 51 00:02:39,030 --> 00:02:41,880 Stephen Koukoulas: that revenue's going to be higher. Certainly, commodity prices are 52 00:02:41,880 --> 00:02:46,260 Stephen Koukoulas: higher, unemployment's lower than were assuming, and these sorts of 53 00:02:46,260 --> 00:02:48,960 Stephen Koukoulas: factors, of course, inflation's higher, these sorts of factors will 54 00:02:48,960 --> 00:02:51,660 Stephen Koukoulas: feed into a " Rivers of Gold," I think it's called, 55 00:02:51,660 --> 00:02:54,510 Stephen Koukoulas: in terms of revenue flowing into the treasury coffer. So 56 00:02:54,510 --> 00:02:57,510 Stephen Koukoulas: we're going to get something tomorrow night, remarkably close to 57 00:02:57,510 --> 00:02:59,580 Stephen Koukoulas: a balanced budget. I'm not quite prepared to say we're 58 00:02:59,580 --> 00:03:01,590 Stephen Koukoulas: going to have a surplus, but boy, it'll be close. 59 00:03:02,160 --> 00:03:04,050 Stephen Koukoulas: Amid that they're going to implement a whole range of 60 00:03:04,050 --> 00:03:06,810 Stephen Koukoulas: policies. Many of those have been leaked out to the 61 00:03:06,810 --> 00:03:10,290 Stephen Koukoulas: media in the last week or two, or even before 62 00:03:10,290 --> 00:03:14,400 Stephen Koukoulas: that. The childcare payments, maybe an adjustment to people over 63 00:03:14,400 --> 00:03:17,490 Stephen Koukoulas: 55 in terms of job seeker payments, little bits and 64 00:03:17,490 --> 00:03:19,980 Stephen Koukoulas: pieces on other parts of the economy. We know the 65 00:03:19,980 --> 00:03:23,280 Stephen Koukoulas: defense spending's going to be rearranged, cuts in some areas, 66 00:03:23,280 --> 00:03:26,040 Stephen Koukoulas: but obviously a boost in other areas. So there's probably 67 00:03:26,040 --> 00:03:27,570 Stephen Koukoulas: going to be a million and one things to look 68 00:03:27,570 --> 00:03:29,760 Stephen Koukoulas: at as there is every budget. And even on the 69 00:03:29,760 --> 00:03:31,830 Stephen Koukoulas: night, we won't be exactly sure what's in there because 70 00:03:31,830 --> 00:03:34,350 Stephen Koukoulas: there's thousands of pages of documents. 71 00:03:35,610 --> 00:03:38,970 Sean Aylmer: I mean, we talk about a budget surplus and a 72 00:03:38,970 --> 00:03:41,550 Sean Aylmer: couple of questions in that. Is it a one- off 73 00:03:41,550 --> 00:03:44,550 Sean Aylmer: surplus just because we have had such a low unemployment 74 00:03:44,550 --> 00:03:48,990 Sean Aylmer: rate, i. e. fewer outgoings and such high commodity prices, 75 00:03:49,170 --> 00:03:52,500 Sean Aylmer: whereas the forward years, the out years, we'll go back 76 00:03:52,500 --> 00:03:55,380 Sean Aylmer: into deficit. That's the first part. And number two, do 77 00:03:55,380 --> 00:03:56,040 Sean Aylmer: we care? 78 00:03:56,460 --> 00:03:58,650 Stephen Koukoulas: Yeah, on the first part, I think you're right, that 79 00:03:58,650 --> 00:04:01,590 Stephen Koukoulas: it is more a bit of a fortuitous windfall gain, 80 00:04:01,590 --> 00:04:04,000 Stephen Koukoulas: if you like, that the ... Well (inaudible) commodity prices 81 00:04:04,380 --> 00:04:06,570 Stephen Koukoulas: stay high, but there's an assumption that with the world 82 00:04:06,570 --> 00:04:09,540 Stephen Koukoulas: economy slowing down, we know that the Fed and the ECB 83 00:04:10,110 --> 00:04:12,480 Stephen Koukoulas: and Canada and New Zealand, they've all been hiking rates 84 00:04:12,480 --> 00:04:15,840 Stephen Koukoulas: aggressively, including last week for some of them, that you've 85 00:04:15,840 --> 00:04:18,240 Stephen Koukoulas: got this position where the world economy is slowing, commodity 86 00:04:18,240 --> 00:04:21,330 Stephen Koukoulas: prices are tilting lower. Now, if the commodity price cycle 87 00:04:21,330 --> 00:04:24,270 Stephen Koukoulas: continues to weaken, which I think it will, then this 88 00:04:24,930 --> 00:04:27,900 Stephen Koukoulas: news on the budget, the almost balanced budget will probably 89 00:04:27,900 --> 00:04:30,810 Stephen Koukoulas: fade in the following couple of years because revenue will 90 00:04:30,810 --> 00:04:33,510 Stephen Koukoulas: dry up a bit. As the economy slows, the unemployment 91 00:04:33,510 --> 00:04:35,880 Stephen Koukoulas: rate will tick up as the reserve bank is saying, 92 00:04:36,750 --> 00:04:40,080 Stephen Koukoulas: and we'll get this position where the deficit, while it 93 00:04:40,080 --> 00:04:41,670 Stephen Koukoulas: won't be as anywhere near as big as it was 94 00:04:41,670 --> 00:04:44,430 Stephen Koukoulas: during the pandemic, will be widening again in these next 95 00:04:44,430 --> 00:04:48,150 Stephen Koukoulas: couple of years. Unless, of course, we just get unforeseen 96 00:04:48,240 --> 00:04:51,900 Stephen Koukoulas: economic good news coming through, which at the moment doesn't 97 00:04:51,900 --> 00:04:52,740 Stephen Koukoulas: look likely. 98 00:04:54,029 --> 00:04:55,710 Sean Aylmer: So should we care about this though, Steven? 99 00:04:55,710 --> 00:04:59,220 Stephen Koukoulas: Should we care about it? Look, yes. Not care about 100 00:04:59,220 --> 00:05:02,250 Stephen Koukoulas: it to the nth degree. The budget balance and the 101 00:05:02,250 --> 00:05:04,560 Stephen Koukoulas: level of government debt do matter. One only has to 102 00:05:04,560 --> 00:05:08,580 Stephen Koukoulas: go back to various sovereign debt crises around the world, 103 00:05:09,210 --> 00:05:12,570 Stephen Koukoulas: or even some of our state governments in the 1990s, 104 00:05:12,570 --> 00:05:14,310 Stephen Koukoulas: the State Bank of Victoria for those people who are 105 00:05:14,310 --> 00:05:17,099 Stephen Koukoulas: old enough to remember, effectively went belly up because the 106 00:05:17,100 --> 00:05:19,950 Stephen Koukoulas: state government finances were a disaster. You remember the Greek 107 00:05:20,339 --> 00:05:22,890 Stephen Koukoulas: debt default. In Latin America, there's often been defaults. So 108 00:05:22,890 --> 00:05:25,740 Stephen Koukoulas: in a sense, the odd budget deficit or a small 109 00:05:25,740 --> 00:05:28,620 Stephen Koukoulas: surplus doesn't matter, but you want to be, it's one 110 00:05:28,620 --> 00:05:30,570 Stephen Koukoulas: of those ones that only matters when it matters. And 111 00:05:31,020 --> 00:05:33,000 Stephen Koukoulas: the less debt you have, the less vulnerable you are. 112 00:05:33,000 --> 00:05:34,380 Stephen Koukoulas: I think that's the point. That if you don't have 113 00:05:34,380 --> 00:05:36,300 Stephen Koukoulas: much debt, you're not going to have a debt crisis. 114 00:05:36,300 --> 00:05:37,979 Stephen Koukoulas: And if you've got a heap of debt, you're just 115 00:05:37,980 --> 00:05:40,830 Stephen Koukoulas: vulnerable to the vagaries of capital markets. 116 00:05:41,430 --> 00:05:43,830 Sean Aylmer: The National Australia Bank Business Survey is out this week. 117 00:05:43,830 --> 00:05:46,410 Sean Aylmer: That's a big one for the Reserve Bank and others. 118 00:05:46,770 --> 00:05:50,100 Stephen Koukoulas: It's a lovely survey. It incorporates so much information. And 119 00:05:50,520 --> 00:05:53,310 Stephen Koukoulas: the headline figures of business confidence and business conditions are 120 00:05:53,310 --> 00:05:56,669 Stephen Koukoulas: the ones that by definition, get the headline results. Our 121 00:05:56,670 --> 00:05:59,250 Stephen Koukoulas: business is optimistic or pessimistic, and for the moment they're 122 00:05:59,760 --> 00:06:03,539 Stephen Koukoulas: pretty optimistic. What is going to be arguably more important are 123 00:06:03,540 --> 00:06:06,839 Stephen Koukoulas: the sub- components of the survey. What's happening to expected 124 00:06:06,839 --> 00:06:10,230 Stephen Koukoulas: selling prices, i. e. inflation. That's started to tilt down 125 00:06:10,230 --> 00:06:13,979 Stephen Koukoulas: the last few months. Hiring intentions, a leading indicator for 126 00:06:13,980 --> 00:06:17,370 Stephen Koukoulas: the unemployment rate and those sorts of indicators, and what's 127 00:06:17,370 --> 00:06:20,580 Stephen Koukoulas: happening to sort of profits and CapEx sort of numbers. 128 00:06:20,580 --> 00:06:22,800 Stephen Koukoulas: So we'll get a pretty good update for how the 129 00:06:22,800 --> 00:06:25,830 Stephen Koukoulas: business sector's actually feeling in the lead into the budget. 130 00:06:26,460 --> 00:06:28,830 Sean Aylmer: The other interesting one this week will be building approvals, 131 00:06:28,830 --> 00:06:32,550 Sean Aylmer: because that's a sector which we're having, anecdotally, we're having 132 00:06:32,550 --> 00:06:34,830 Sean Aylmer: all sorts of problems. Well, builders are having all sorts 133 00:06:34,830 --> 00:06:35,370 Sean Aylmer: of problems. 134 00:06:36,450 --> 00:06:40,140 Stephen Koukoulas: Yes, they're folding. They've been hit by, well, a triple 135 00:06:40,140 --> 00:06:43,890 Stephen Koukoulas: whammy, very high input costs from the high inflation rate 136 00:06:43,890 --> 00:06:46,620 Stephen Koukoulas: we've seen around the world; a shortage of tradespeople. So 137 00:06:46,620 --> 00:06:49,890 Stephen Koukoulas: that labor shortage has also compounded the difficulty of actually 138 00:06:49,890 --> 00:06:53,400 Stephen Koukoulas: building the property. And of course, the housing downturn that 139 00:06:53,400 --> 00:06:56,820 Stephen Koukoulas: we've had, the interest rate hikes have impacted housing more 140 00:06:56,820 --> 00:07:00,270 Stephen Koukoulas: generally, both in terms of prices until recently, and actual 141 00:07:00,270 --> 00:07:04,770 Stephen Koukoulas: activity. So new building approvals had fallen around 50% goodness, 142 00:07:04,800 --> 00:07:08,339 Stephen Koukoulas: from their peak level in the middle of 2022. We're 143 00:07:08,339 --> 00:07:11,370 Stephen Koukoulas: expecting some sort of consolidation where they're just falling too 144 00:07:11,370 --> 00:07:15,060 Stephen Koukoulas: far. If they fall much further, it actually bodes poorly 145 00:07:15,330 --> 00:07:17,850 Stephen Koukoulas: for the outlook because of course, construction's an important part 146 00:07:17,850 --> 00:07:20,070 Stephen Koukoulas: of the economy. And when house prices and the rental 147 00:07:20,070 --> 00:07:23,130 Stephen Koukoulas: market for dwellings is so tight, we need to build 148 00:07:23,130 --> 00:07:25,560 Stephen Koukoulas: houses because we know that population growth is booming. 149 00:07:26,460 --> 00:07:30,060 Sean Aylmer: Stephen you're going to have a great week. We're going to talk again on early Wednesday morning 150 00:07:30,060 --> 00:07:33,690 Sean Aylmer: after the budget. I mean, do you sleep Tuesday night? 151 00:07:33,960 --> 00:07:37,200 Stephen Koukoulas: No. And this year I'm not going to the lockup 152 00:07:37,830 --> 00:07:41,520 Stephen Koukoulas: tomorrow night. I'll be sitting dutifully by my desk waiting 153 00:07:41,520 --> 00:07:44,130 Stephen Koukoulas: for the 7: 30 release of the budget papers. I'll 154 00:07:44,130 --> 00:07:47,550 Stephen Koukoulas: have goodness knows how many windows open as I scour 155 00:07:47,550 --> 00:07:50,280 Stephen Koukoulas: through them. It'll be a late night, but gee, I 156 00:07:50,280 --> 00:07:51,690 Stephen Koukoulas: couldn't wish for anything more exciting. 157 00:07:52,110 --> 00:07:54,450 Sean Aylmer: Fair enough, Stephen. Enjoy it and enjoy the rest of 158 00:07:54,450 --> 00:07:54,840 Sean Aylmer: the week. 159 00:07:55,080 --> 00:07:55,620 Stephen Koukoulas: Thank you, Sean. 160 00:07:56,220 --> 00:07:59,220 Sean Aylmer: That was economist Stephen Koukoulas better known as the Kouk. You can 161 00:07:59,220 --> 00:08:01,800 Sean Aylmer: find him at thekouk. com and follow him on Twitter 162 00:08:01,800 --> 00:08:04,410 Sean Aylmer: using the handle TheKouk. I'm Sean Aylmer, and this is 163 00:08:04,410 --> 00:08:05,640 Sean Aylmer: Fear and Greed - The Week Ahead.