Daily Bulletin

The Conversation

  • Written by The Conversation Contributor

Vital Signs is a weekly economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data impacting global economies.

This week:

Three important measures of confidence in the Australian economy were released this week. One was OK, one was not great, and one was either pretty bad or quite comforting, depending on your perspective.

First, for the “OK news”. The NAB business confidence index remained unchanged at 3, while the business conditions index rose 3 points to 8 - above the long-term average of 5. Business confidence is still affected by global financial volatility and the questionable China outlook I have written about in this column recently. Conditions, by contrast, are looking reasonable: with continued low interest rates, subdued inflation and wage pressures, and a weaker Australian dollar helping exporters (all though the strong rally of recent days may put a dent in this next month).

The “not great news” came from the Westpac/Melbourne Institute Index of Consumer Sentiment. It fell from 101.3 to 99.1 - with pessimist outnumbering optimists for the first time in several months. The component measuring views of economic conditions for the next five years - a good measure of longer-term confidence and willingness to consume or invest - fell 2.5% to 92.6, down 0.9% on this time last year.

The third - and most interesting - piece of domestic news was the release of ABS housing data showing a marked cooling of demand for home loans. Total dwelling commitments fell 3.4% in seasonally adjusted terms, with the owner occupied segment down 4.3%. In one sense this sounds like a vote of no confidence - but remember that the Australian Prudential Regulatory Agency (APRA) tightened capital requirements for banks, with banks responding by raising rates. This kind of adjustment is just what APRA had in mind, given concerns about a housing bubble and weakening loan quality.

Around the world, China released its consumer price index figures for February on Thursday evening Sydney time. The CPI increased 2.3% (year on year) compared to market expectations of 1.8%. Yet this was largely driven by a 7.3% annual increase in food prices. Core CPI came in at just 1.3%, providing more support for further easing of monetary policy.

Chinese trade data reflects the weak global economy with exports down 20.6% in local currency terms over the year. In US dollar terms - which matters for China’s accumulation of foreign reserves - exports were down 25.4% and imports down 13.8%.

Finally, a very significant meeting of the European Central Bank (ECB) took place just a few hours ago. Markets expected ECB President Mario Draghi to announce further interest rate cuts and an expansion of the Euro 60 billion-a-month asset purchase program (quantitative easing, or QE) by 20 billion Euros a month.

The ECB reduced its main interest rates 0.05% to 0% and cut bank deposit rates by 10 basis point from 0.3% to -0.4% - that’s not a typo, interest rates are negative!

Good news for markets? The ECB also cut its inflation forecast, raising the ugly spectre of deflation anew. But what set markets into a tailspin was this statement by Draghi:

“…can (rates) go as low as we want without having any consequences on the banking system? The answer is no.”

The suggestion that more stimulus is needed, but might not happen, was met with concern by markets overnight.

In summary, lots of new data, but a very similar message to what we have seen recently. The Australian economy seems to be transitioning from the mining boom reasonably well, but there is a long way to go before it’s time to rest easy. That is in no small part due to the severe weaknesses in the global economy. Europe is using extraordinary measures in its struggle to fight deflation and China remains weak.

In future weeks watch out for an update on the US economy and whether the Fed raised rates too quickly late last year. We will also learn more about financial stability in China. Plenty to look forward to, and be nervous about.

Authors: The Conversation Contributor

Read more http://theconversation.com/vital-signs-confidence-ranges-from-ok-to-not-great-meanwhile-the-euro-crisis-simmers-56062

Writers Wanted

Toxicity swirls around January 26, but we can change the nation with a Voice to parliament


'I can't save money for potential emergencies': COVID lockdowns drove older Australians into energy poverty


The Conversation


Ray Hadley's interview with Scott Morrison

RAY HADLEY: Prime Minister, good morning.    PRIME MINISTER: G’day Ray.   HADLEY: I was just referring to this story from the Courier Mail, which you’ve probably caught up with today about t...

Ray Hadley & Scott Morrison - avatar Ray Hadley & Scott Morrison

Prime Minister's Remarks to Joint Party Room

PRIME MINISTER: Well, it is great to be back in the party room, the joint party room. It’s great to have everybody back here. It’s great to officially welcome Garth who joins us. Welcome, Garth...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Ben Fordham, 2GB

BEN FORDHAM: Scott Morrison, good morning to you.    PRIME MINISTER: Good morning, Ben. How are you?    FORDHAM: Good. How many days have you got to go?   PRIME MINISTER: I've got another we...

Scott Morrison - avatar Scott Morrison

Business News

Tips to find the best plastic manufacturing supplier for your needs

Plastics are very much an important part of all of our lives, but they’re particularly valuable to a wide variety of industries that rely on their production for their operations. The industries, ...

News Co - avatar News Co

7 foolproof tips for bidding successfully at a property auction

Auctions can be beneficial for prospective buyers, as they are transparent and fair. If you reach the limit you are willing to pay, you can simply walk away. Another benefit of an auction is tha...

Dominique Grubisa - avatar Dominique Grubisa

Getting Ready to Code? These Popular and Easy Programming Languages Can Get You Started

According to HOLP (History Encyclopedia of Programing Languages), there are more than 8,000 programming languages, some dating as far back as the 18th century. Although there might be as many pr...

News Co - avatar News Co

News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion