Friday, April 12, 2013

Woodside backdown caps rocky week for Australian economy

By Business editor Peter Ryan
This morning's announcement from Woodside shelving the Browse project in north-western Australia caps a rocky week for the Australian economy.

Resource projects aren't the only worry. There's a prediction that the demise of the Australian car industry is inevitable - but more on that later.

The combination of the high Australian dollar and the cost of doing business in Australia has been taking a toll for some time, especially with the dollar now back over 105 US cents.

Listen to my analysis from this morning's edition of AM.

Read Woodside's announcement to the Australian Stock Exchange

But simple economics and basic housekeeping rules are at work here for the resource giants - especially when it comes to multi-billion dollar projects like Browse.

And Woodside isn't the only company running a ruler over massive cost versus returns.

Just last year BHP Billiton shelved its much hyped Olympic Dam project in South Australia, citing the cost of doing business here in addition to the Australian dollar.

And Woodside's expected decision fits in with predictions that the investment phase of the resources boom will peak earlier than expected - that's something the Reserve Bank has been saying for the past year as it manages expectations about the long term life of the boom.

Woodside is one headline today. But other industries - such as the car manufacturing sector - are also putting the government on notice.
Jac Nasser, currently the chairman of BHP Billiton and the former boss of Ford, has ramped up the warnings.

Speaking in Melbourne yesterday, Mr Nasser said all businesses including miners are wary about the cost of doing business in Australia, industrial relations and the thorny issue of tax and how much they say they're already paying.

But on the future of the local car manufacturing industry, Mr Nasser is quite pessimistic and he believes it's inevitable because of the factors, in particular the high dollar, that the local industry currently Ford, Holden, Toyota will eventually shut down.

"As soon as you have a reduction in the scale of domestic manufacturing, let's assume one of the three decide to exit Australia in terms of manufacturing, then you end up potentially with a subscale supplier infrastructure. And once that happens, I think it's a domino effect," Mr Nasser said.

"It would be a very sad day for Australia but unfortunately it looks like it could be inevitable."

But the latest unsettling news about resources amounts to a reality check.

It comes after Australia's official jobless rate hit 5.6 per cent after more than 30,000 jobs disappeared in March after expectations had been for a steady result.

Thursday, April 11, 2013

Jobless rate spikes to 5.6 per cent

By Business editor Peter Ryan

Australia's unemployment rate has jumped to 5.6 per cent catching some economists off-guard.

According to the Bureau of Statistics, the number of people with jobs fell by more than 36,000.

Listen to my report from The World Today.

The result has added to concerns that the economy is weakening in some sectors and keeps the prospect of another interest rate cut on the agenda.

The outcome for March is a significant snap back or adjustment after the February result which had 71,500 new jobs which has been  revised upwards to 74,000.

But this time around it's all about payback. A jobless rate of  5.6 per cent is a three year high last seen in mid-2009 at the height of the global financial crisis.

Overall jobs are down by 36,100 and of that 7,400 full-time positions  have disappeared.

The participation rate has  fallen to 65.1 per cent which is often a sign that some people have actually given up the hunt for work.

JP Morgan's chief economist Stephen Walters says the result counters signs of a pickup in non mining parts of the economy

"Just this week alone we've now got a much higher unemployment rate, we've had business confident deteriorate this week, certain business conditions were a lot weaker particularly the employment measures and we also had consumer confidence slump yesterday and to top all that off we've now got the currency at post float high in terms of, in trade weighted terms so a pretty sobering message today," Mr Walters told The World Today.

Wednesday, April 10, 2013

One pleasant surprise from the financial crisis as IMF ponders missing inflation mystery

By Business editor Peter Ryan

The International Monetary Fund has signalled that inflation appears to be under control despite the trillions of dollars that have been pumped into the global economy in recent years.

For those who might glaze over at talk of inflation and quantitative easing, do not switch off now, the International Monetary Fund wants you to stay tuned.

Listen to my report from The World Today.

"We understand that these topics can sometimes be a little bit dry so we've tried to construct this one as a bit of a mystery story and so we've made a reference to Sherlock Homes and one of his famous cases about the dog that didn't bark," said the IMF's senior economist John Simon.

That dog is inflation, and recently Fido has been in his kennel despite trillions of dollars of quantitative easing - or metaphorical money printing - by central banks around the world.

The IMF and most economists around the world would normally be bracing for outbreak of inflation.

Mr Simon says, in terms of conventional monetary policy, it is a thriller.

"The basic mystery is that during the Great Recession we've seen very large increases of unemployment and in the past when you've had something like that inflation has fallen quite a lot, really there's been very little movement in inflation and the question is why was this?" he asked.

Speaking in Washington at the release of the IMF's World Economic Outlook, Mr Simon said the credibility and independence of central banks meant inflation targeting was working.

"There's been an evolution in central banking such that now it's very possible that we really are reaping the benefits of the low and stable inflation targets the central banks have set," he said.

"So one of the consequences is that we think there are actually substantially cyclical unemployment gaps, which means that there is actually the scope for falls in unemployment as the recovery progresses without there being corresponding bursts in inflation."

The head of investment research at Perpetual, Matt Sherwood, says the IMF's confidence that inflation will remain low is well placed.

"It really has been probably the great surprise in the post-GFC world that, despite the fact the growth's at trend and there's been record stimulus in the form of large fiscal deficits and near zero interest rates, I mean inflation does remain very well anchored," he observed.

"In essence I think the IMF's just really reflecting the data which has been coming out, which continues to show that despite all this stimulus there's very little inflation in the global economy at all."

Mr Sherwood says economists have generally been pleasantly surprised by the tame inflation readings in the face of such low interest rates and large money printing programs.

"I think it's been a great surprise to all economists, because given the amount of stimulus in the economy at present one would normally associate that of course with higher inflation," he added.

The one exception of course is that Japan is using massive money printing to push inflation higher, which is perhaps another challenge for the IMF.

There is also the future of inflation targeting by central banks. The IMF's John Simon says perhaps it is time to consider it should be the principal tool in massaging economies.

"There is a case to think about whether inflation targets as they currently constituted are the best way of maximising the welfare of an economy," he said.

"This is not to say there's any predetermined answer here, it's just saying that you can see, for example in the UK, they've been thinking you know is this inflation targeting regime we have and the precise way we've implemented it the best way to go about maximising economic wealth, happiness in our economy."

Inflation is also on the mind of the Reserve Bank of Australia, and for good reasons.

RBA assistant governor Christopher Kent repeated that low inflation provided scope for another cut to the cash rate.

"With inflation remaining recently well contained, and certainly a bit below the mid-point of the target and expected at the current assessment to remain at target over the next little while, with that in place the board's made it clear there's scope to ease monetary policy further should that be necessary," he said.

While another rate cut is increasingly unlikely because of stronger economic news, the latest consumer confidence reading from Westpac shows Australians are less optimistic because of softer share markets and concerns about the eurozone after the near banking collapse in Cyprus.

Monday, April 8, 2013

Coalition to release NBN policy as early as tomorrow

By Business editor Peter Ryan

Business groups have raised concerns about a potential cost blowout on the National Broadband Network ahead of the release of the Coalition's broadband policy.

A leak of the Coalition broadband policy in News Limited newspapers says that document finds the final price tag of the NBN could exceed $90 billion.

The Daily Telegraph Mon April 8, 2013
The Australian Industry Group says if that figure is correct it is very alarming.

AI Group chief executive Innes Willox has told AM he wants the government to provide a genuine cost-benefit analysis of the NBN.

"There are those who argue the government has been fairly transparent on costs all the way through, but a rigorous cost benefit analysis that would be done while the rollout continues, that can do no harm, it can only instil further public confidence in the rollout," he said.

However, the Federal Government has dismissed the leaked figure, saying it is scare mongering.

"The corporate plan, audited by the Auditor-General, is produced each year, and what you're seeing in that corporate plan is $37.4 billion is the cost of building the NBN - not, as today the Coalition is claiming, $90 billion," the Communications Minister Stephen Conroy told AM.

Innes Willox says business just wants high speed broadband to be built quickly and cost-effectively, and a cost-benefit analysis would assist in ensuring the project is on track to deliver on its promises.

"We believe the NBN, or a high-speed rollout of broadband, is very important to our future, but we don't want to get the productivity argument lost in the debate about costing. We believe it's very important as a productivity enabler and driver in Australia," he said.

"We're not particularly fussed about whether it's fibre to the home or fibre to the node, as long it's a good product, rolled out expeditiously, that business can utilise as well as the broader community."