1 00:00:05,340 --> 00:00:08,369 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, and as 2 00:00:08,369 --> 00:00:11,369 Sean Aylmer: always, I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:11,369 --> 00:00:14,489 Sean Aylmer: at thekouk. com. And on X, using the handle, TheKouk. 4 00:00:14,490 --> 00:00:15,449 Sean Aylmer: Stephen, good morning. 5 00:00:15,990 --> 00:00:18,929 Stephen Koukoulas: Good morning from a chilly Melbourne. It's cold here this morning. 6 00:00:20,399 --> 00:00:24,540 Sean Aylmer: Oh, I've got to ask you a question here. Now. Last week, Oxford Economics came out with their 7 00:00:24,570 --> 00:00:28,739 Sean Aylmer: top 1000 urban areas to live, and they had five 8 00:00:28,740 --> 00:00:31,829 Sean Aylmer: categories, economics being the main one. New York came in 9 00:00:31,830 --> 00:00:35,608 Sean Aylmer: at number one, London came in at number two, number 10 00:00:35,609 --> 00:00:40,020 Sean Aylmer: nine, best of the Australian Cities, Melbourne. Would you agree? 11 00:00:40,320 --> 00:00:42,960 Stephen Koukoulas: I can't argue with that. It's a great city. I'm 12 00:00:42,960 --> 00:00:45,958 Stephen Koukoulas: glad I've moved here. Not just for the fun, the 13 00:00:45,960 --> 00:00:49,529 Stephen Koukoulas: culture, the restaurants, the cafes, but the sport, the horse 14 00:00:49,530 --> 00:00:54,359 Stephen Koukoulas: racing. Oh, just the general atmosphere. And the weather, I 15 00:00:54,359 --> 00:00:57,450 Stephen Koukoulas: like the cool weather. So even though I'm semi complaining 16 00:00:57,450 --> 00:01:00,000 Stephen Koukoulas: about the cool weather, it's superior to the hot and 17 00:01:00,000 --> 00:01:01,830 Stephen Koukoulas: humidity that you get in other places. 18 00:01:02,040 --> 00:01:04,410 Sean Aylmer: Well, you have lived in Melbourne over summer though. You have 19 00:01:04,410 --> 00:01:06,179 Sean Aylmer: been through a Melbourne summer and that's pretty hot. 20 00:01:06,330 --> 00:01:09,389 Stephen Koukoulas: It is hot, but thankfully we've got the power generation 21 00:01:09,389 --> 00:01:12,869 Stephen Koukoulas: going on, so the air conditioning and those sorts of 22 00:01:12,869 --> 00:01:16,289 Stephen Koukoulas: things can sort of keep the temperature lower while you'd relax, watch 23 00:01:16,290 --> 00:01:20,069 Stephen Koukoulas: the tennis, watch the cricket, and do those other nice things 24 00:01:20,069 --> 00:01:20,880 Stephen Koukoulas: that happened in Melbourne. 25 00:01:21,450 --> 00:01:23,490 Sean Aylmer: Just quickly, last week we had the Reserve Bank minutes. 26 00:01:23,490 --> 00:01:26,130 Sean Aylmer: Did we learn anything new there, particularly given we've had 27 00:01:26,130 --> 00:01:28,290 Sean Aylmer: a fair bit of information since that meeting? 28 00:01:28,469 --> 00:01:31,800 Stephen Koukoulas: Look, I think we learned nothing because the critical words 29 00:01:31,800 --> 00:01:33,959 Stephen Koukoulas: in that statement, that's all due respect to the RBA 30 00:01:33,959 --> 00:01:37,050 Stephen Koukoulas: because they did have their analysis of the economy, but 31 00:01:37,050 --> 00:01:41,069 Stephen Koukoulas: there was this throwaway sentence. These forecasts do not take 32 00:01:41,069 --> 00:01:44,880 Stephen Koukoulas: account of the upcoming federal and state budgets. And as 33 00:01:44,880 --> 00:01:47,580 Stephen Koukoulas: we know, a week after that board meeting, we had 34 00:01:47,580 --> 00:01:50,790 Stephen Koukoulas: the federal budget and that included the measures on electricity 35 00:01:50,790 --> 00:01:54,990 Stephen Koukoulas: subsidies, some rental subsidies, some other payments and issues too. 36 00:01:54,990 --> 00:01:59,130 Stephen Koukoulas: So without being unfair to the RBA, those numbers and 37 00:01:59,130 --> 00:02:01,469 Stephen Koukoulas: those minutes were obsolete because the budget include a whole 38 00:02:01,469 --> 00:02:04,230 Stephen Koukoulas: lot of measures that had an impact on the measure 39 00:02:04,559 --> 00:02:07,890 Stephen Koukoulas: CPI, an impact on the extent to which fiscal policy 40 00:02:07,890 --> 00:02:09,780 Stephen Koukoulas: is just giving a little bit of a helping hand 41 00:02:09,780 --> 00:02:13,380 Stephen Koukoulas: to the economy as 2024/ 25 financial year kicks off. 42 00:02:13,950 --> 00:02:16,290 Sean Aylmer: Okay. This week we've got plenty of information coming out 43 00:02:16,290 --> 00:02:20,040 Sean Aylmer: in terms of how the economy is travelling. Let's start 44 00:02:20,040 --> 00:02:22,740 Sean Aylmer: with the monthly inflation figures. What do you expect from them? 45 00:02:22,859 --> 00:02:26,910 Stephen Koukoulas: Yeah, really important of course. Inflation, inflation, inflation. That's the 46 00:02:26,910 --> 00:02:30,660 Stephen Koukoulas: three main issues for the RBA right now. It's for 47 00:02:30,660 --> 00:02:32,849 Stephen Koukoulas: the month of April, and we know petrol prices went 48 00:02:32,849 --> 00:02:36,359 Stephen Koukoulas: up. This is probably the only downside of monthly inflation 49 00:02:36,360 --> 00:02:39,059 Stephen Koukoulas: numbers as opposed to quarterly inflation numbers. They pick up 50 00:02:39,059 --> 00:02:43,739 Stephen Koukoulas: a lot of noise. So we're expecting the annual increase 51 00:02:43,770 --> 00:02:46,620 Stephen Koukoulas: in monthly inflation to April to pick up to around about 3. 52 00:02:47,100 --> 00:02:52,110 Stephen Koukoulas: 7, 3. 8% from 3. 5%. But basically, all of 53 00:02:52,110 --> 00:02:53,639 Stephen Koukoulas: that pick up will be due to the fact that 54 00:02:53,639 --> 00:02:56,220 Stephen Koukoulas: the oil price kicked up in the month of April. 55 00:02:56,460 --> 00:02:58,859 Stephen Koukoulas: This is where it's one of those times when you 56 00:02:58,859 --> 00:03:01,109 Stephen Koukoulas: look at the trimmed mean or some of the underlying 57 00:03:01,110 --> 00:03:03,990 Stephen Koukoulas: measures of inflation to see whether we've got another little 58 00:03:03,990 --> 00:03:06,359 Stephen Koukoulas: step down. But either way, it's going to be really, 59 00:03:06,360 --> 00:03:09,330 Stephen Koukoulas: really important to sort of see where that inflation momentum is. 60 00:03:09,990 --> 00:03:12,629 Sean Aylmer: Okay, now the household is hurting. We know that, the 61 00:03:12,630 --> 00:03:15,089 Sean Aylmer: Reserve bank knows that this week we get retail trade 62 00:03:15,089 --> 00:03:17,609 Sean Aylmer: figures as well, which is a partial indicator of how 63 00:03:17,609 --> 00:03:21,329 Sean Aylmer: households are traveling. I mean, it's kind of not a 64 00:03:21,329 --> 00:03:22,230 Sean Aylmer: good story, is it? 65 00:03:22,650 --> 00:03:26,070 Stephen Koukoulas: It's not. And in fact, when we look at the economy overall, things 66 00:03:26,070 --> 00:03:29,730 Stephen Koukoulas: like business investments doing okay, net exports are doing okay. 67 00:03:29,849 --> 00:03:33,180 Stephen Koukoulas: We know the government sector, both state and federal are 68 00:03:33,419 --> 00:03:36,359 Stephen Koukoulas: spending money. So that's that into the economy. That really 69 00:03:36,359 --> 00:03:39,210 Stephen Koukoulas: weak part is the consumer. It is the household sector 70 00:03:39,630 --> 00:03:44,010 Stephen Koukoulas: that we, consumers, we're savvy beings, if you like. That 71 00:03:44,010 --> 00:03:46,980 Stephen Koukoulas: we respond to cost of living pressures. We're responding to 72 00:03:46,980 --> 00:03:48,840 Stephen Koukoulas: the fact that rents are going up, we're responding to 73 00:03:48,840 --> 00:03:51,179 Stephen Koukoulas: the interest rate hikes that are being delivered, and we're 74 00:03:51,179 --> 00:03:54,990 Stephen Koukoulas: responding in a way, which means we're spending less. So 75 00:03:54,990 --> 00:03:58,949 Stephen Koukoulas: we're expecting a really soggy, weak retail sales number for 76 00:03:59,340 --> 00:04:02,070 Stephen Koukoulas: the month of April. Again, there's a little bit of 77 00:04:02,070 --> 00:04:05,580 Stephen Koukoulas: issues with the seasonality from the ABS. I think Easter 78 00:04:05,910 --> 00:04:09,000 Stephen Koukoulas: fell in April this year, which can cause some quirky 79 00:04:09,000 --> 00:04:12,779 Stephen Koukoulas: numbers. But the bottom line is Sean, retail spending is 80 00:04:12,779 --> 00:04:16,440 Stephen Koukoulas: flat to weak, and that's where the hole in the economy is. 81 00:04:17,279 --> 00:04:18,928 Sean Aylmer: We saw that last week. There were a bunch of 82 00:04:18,930 --> 00:04:22,290 Sean Aylmer: companies like (inaudible) and some of those guys have 83 00:04:22,290 --> 00:04:24,420 Sean Aylmer: all come out and just said that it's really soft 84 00:04:24,420 --> 00:04:27,839 Sean Aylmer: out there. You mentioned business investment then. So we get 85 00:04:27,839 --> 00:04:30,660 Sean Aylmer: CapEx numbers out this week. That's interesting. What is the 86 00:04:30,660 --> 00:04:34,920 Sean Aylmer: mechanism though? Why do you have weak household spending yet 87 00:04:34,920 --> 00:04:37,410 Sean Aylmer: businesses still happy to invest? I don't quite get that. 88 00:04:38,130 --> 00:04:41,159 Stephen Koukoulas: For the business sector, and of course they are vulnerable 89 00:04:41,160 --> 00:04:43,529 Stephen Koukoulas: to interest rates too. Most businesses I know have an 90 00:04:43,529 --> 00:04:46,709 Stephen Koukoulas: overdraft or they borrow money to fund their expansion. I 91 00:04:46,709 --> 00:04:51,150 Stephen Koukoulas: think every business has debt, so they are hit by the higher interest 92 00:04:51,150 --> 00:04:53,580 Stephen Koukoulas: rates as well. However, they've got a threshold to grow 93 00:04:53,580 --> 00:04:56,010 Stephen Koukoulas: their business. They've got an objective to make sure that 94 00:04:56,010 --> 00:04:59,519 Stephen Koukoulas: they've got the best IT. They've got the best artificial 95 00:04:59,520 --> 00:05:03,330 Stephen Koukoulas: intelligence that they're not falling behind their competitors. And interestingly, 96 00:05:03,330 --> 00:05:04,919 Stephen Koukoulas: this is still part of the reason why I think 97 00:05:04,920 --> 00:05:09,150 Stephen Koukoulas: CapEx is doing reasonably well, in fact quite well. There's a catch- 98 00:05:09,150 --> 00:05:13,950 Stephen Koukoulas: up from the COVID pandemic. We heard many, many stories 99 00:05:13,950 --> 00:05:16,229 Stephen Koukoulas: of businesses saying, " I need a new van, I need new 100 00:05:16,230 --> 00:05:19,110 Stephen Koukoulas: machinery, I need new equipment." But because of the supply 101 00:05:19,110 --> 00:05:22,619 Stephen Koukoulas: chain problems, they couldn't get it. Now, in this year 102 00:05:22,619 --> 00:05:25,680 Stephen Koukoulas: or two since the pandemic has ended, if you know 103 00:05:25,680 --> 00:05:28,680 Stephen Koukoulas: what I mean, they've said, " Well, I still need that 104 00:05:28,680 --> 00:05:32,580 Stephen Koukoulas: machinery. I still need to invest in transport. I still 105 00:05:32,580 --> 00:05:35,549 Stephen Koukoulas: need to invest in warehouse distribution because we're buying more 106 00:05:35,550 --> 00:05:38,849 Stephen Koukoulas: and more stuff online." And that's where the CapEx is 107 00:05:38,849 --> 00:05:43,079 Stephen Koukoulas: supportive of the economy. So we're expecting a modest increase 108 00:05:43,080 --> 00:05:46,020 Stephen Koukoulas: in CapEx for the March quarter, which feeds into the March 109 00:05:46,020 --> 00:05:48,570 Stephen Koukoulas: quarter GDP numbers, which come out next week. But business 110 00:05:48,570 --> 00:05:52,260 Stephen Koukoulas: investment, the vital link for getting productivity back up. So 111 00:05:52,559 --> 00:05:54,990 Stephen Koukoulas: if we don't get a pick- up in business investment 112 00:05:54,990 --> 00:05:57,900 Stephen Koukoulas: in the next 12 months, it's another sort of just 113 00:05:57,900 --> 00:06:00,749 Stephen Koukoulas: a negative thing on the productivity outlook, which we don't 114 00:06:00,750 --> 00:06:02,400 Stephen Koukoulas: want. We want productivity to improve. 115 00:06:02,700 --> 00:06:05,219 Sean Aylmer: And let's stay negative. Stephen, why not? It's a Monday 116 00:06:05,220 --> 00:06:08,310 Sean Aylmer: morning, building approvals. Oh, God. 117 00:06:08,970 --> 00:06:12,059 Stephen Koukoulas: That horror story. I can't think of a polite way 118 00:06:12,059 --> 00:06:15,328 Stephen Koukoulas: of putting it, but yeah, we know that at a 119 00:06:15,330 --> 00:06:18,750 Stephen Koukoulas: time when we do need more houses being built, I 120 00:06:18,750 --> 00:06:22,890 Stephen Koukoulas: don't think anybody disagrees with that. And we had the debate emerging in 121 00:06:22,890 --> 00:06:25,470 Stephen Koukoulas: the political sphere about immigration targets and all that sort 122 00:06:25,470 --> 00:06:27,149 Stephen Koukoulas: of stuff. But without getting into the nitty- gritty of 123 00:06:27,150 --> 00:06:31,529 Stephen Koukoulas: that, even with the lower immigration targets that the opposition 124 00:06:31,529 --> 00:06:33,569 Stephen Koukoulas: parties are proposing right now, we still will have a 125 00:06:33,570 --> 00:06:36,419 Stephen Koukoulas: big shortage of housing. And so the building approvals numbers, 126 00:06:36,420 --> 00:06:38,940 Stephen Koukoulas: we need to see them. We must see them picking 127 00:06:38,940 --> 00:06:41,760 Stephen Koukoulas: up, because they're currently running at a level that's about 35, 128 00:06:41,760 --> 00:06:47,669 Stephen Koukoulas: 40% in annualized terms below that target that the government's 129 00:06:47,670 --> 00:06:49,799 Stephen Koukoulas: got to build 1. 2 million dwellings over the next 130 00:06:49,799 --> 00:06:52,529 Stephen Koukoulas: five years. And unless we start getting a wriggle on 131 00:06:53,369 --> 00:06:57,359 Stephen Koukoulas: now, really, really soon, there's just no way they're going to meet that target. So 132 00:06:57,839 --> 00:07:00,029 Stephen Koukoulas: he's hoping we see a pick- up in building approvals, 133 00:07:00,029 --> 00:07:02,070 Stephen Koukoulas: but alas, I think we're going to see another pretty 134 00:07:02,070 --> 00:07:02,790 Stephen Koukoulas: soggy result. 135 00:07:03,210 --> 00:07:04,260 Sean Aylmer: Enjoy the week, Stephen. 136 00:07:04,500 --> 00:07:05,279 Stephen Koukoulas: Will do. Thank you. 137 00:07:05,730 --> 00:07:09,178 Sean Aylmer: That was Economist Stephen Koukoulas, better known as The Kouk, T- H- E- K- O- U- 138 00:07:09,178 --> 00:07:12,000 Sean Aylmer: K. You can find him at thekouk. com and follow 139 00:07:12,000 --> 00:07:15,150 Sean Aylmer: him on X using the handle TheKouk. I'm Sean Aylmer, and this is Fear 140 00:07:15,150 --> 00:07:16,140 Sean Aylmer: and Greed - The Week Ahead.