Thursday, July 18, 2013

Bernanke's caution on stimulus withdrawal welcomed by investors

Less than a month ago, the world's most powerful central banker unsettled financial markets when he laid out a timeline for ending the unprecedented stimulus to the US economy.

The comments from the Federal Reserve's chairman Ben Bernanke sparked big swings in both the US and Australian currencies and a global selloff of stocks.

But overnight in Washington, Dr Bernanke tried to soothe investor nerves when he said the end of the Fed's money printing program was not necessarily on a preset course.

Ben Bernanke’s carefully chosen words are critical as prepares to execute a smooth exit from the quantitative easing program where the Fed is buying US$85 billion of bonds every month.

The trouble is that investors remain addicted to what has become an era of cheap and easy money as the causes of the global financial crisis fade into history.

So any suggestion that the party is over because of good news about the US economic recovery is being greeted as bad news.

The US dollar dived when Dr Bernanke’s prepared statement hit markets and as a result the Australian dollar rocketed to 92.92 US cents in more evidence that Australia remains at the whim of words from Washington or Wall Street.

But the money printing has to end given that to since 2009 the Fed’s stimulus has quadrupled to US$3.5 trillion.

The numbers might be mind-boggling. But any suggestion, signal let alone decision to taper quantitative easing is enough to cause painful financial lurches around the world.

So when Dr Bernanke addressed Congress overnight, he was choosing his words more cautiously than usual and said that while the stimulus could be scaled back, it could also be pumped up in the event of the economic shock.

It appears Ben Bernanke knows he has to have a bet each way to have any chance of a smooth and graceful escape from the bond buying.

But the evidence is that investors are hearing what they want to hear and today they were celebrating that the easy money might be around for a while yet.

Monday, July 15, 2013

Energy efficiency would add billions to economy: report

By Business editor Peter Ryan

An improvement in energy efficiency of just 1 per cent would add $26 billion to Australia's economy by 2030, according to a new report.

Research commissioned by the Climate Institute and US energy giant General Electric says Australia's poor investment in energy efficiency is costing tens of billions of dollars in potential economic growth.

But instead of following the lead of other developed nations, the study says Australia is failing to match efficiency improvements in other economies.

The research by Vivid Economics found that on average a 1 per cent improvement in energy efficiency would boost gross domestic product (GDP) per person by 0.1 percentage point and generate an additional $8 billion by 2020 and $26 billion by 2030.

Climate Institute chief executive John Connor says the improved energy efficiency is critical given the Prime Minister's proposal to lift annual productivity growth to 2 per cent.

"This is an important contribution to improving Australia's productivity as well as cutting our energy bills and carbon pollution," Mr Connor said.

"Our research puts a figure on just how much we are missing out on. The reality is that our current policies are inadequate to address the barriers preventing smarter energy use.

"To get to the next level, we need policies like a national energy saving initiative, ambitious performance standards for vehicles and equipment and bipartisan support for a robust long-term signal for low-carbon investment."

The research examines 28 countries including Japan, China, South Korea, the United States and Britain and is forecast over 30 years.

It points to key sectors such as manufacturing, resources, construction, freight and transport as areas which could cut their energy use by 11 per cent and save $3 billion per year.

Recent research by ClimateWorks Australia says companies can save energy by upgrading equipment, retrofitting buildings and recalibrating operational processes.

"We need to get beyond the idea that energy efficiency means changing light bulbs. In fact, just about every product and process can be streamlined to reduce energy waste, " Mr Connor said.

"Businesses are starting to recognise this, but there's a lot more they can do."

While the Climate Institute wants energy pricing to more accurately reflect the true cost of energy use, it also wants to maintain the carbon price mechanism which the Prime Minister is about to scrap in favour of an emissions trading scheme.

"Emissions trading puts not just a price but also a limit on carbon pollution," Mr Connor said.

"In moving from the fixed carbon price to a limit on carbon emissions, the interaction with other climate action becomes critical.

"Remember why we did all this in the first place: it is about reducing Australia's disproportionate contribution to climate change and making our high-carbon economy competitive in the low-carbon reality of the 21st century."

Mr Connor says any decision to bring an emissions trading scheme forward should include a "statement of increased ambition" and an continuing role for the independent Climate Change Authority.

China's economy slows again. But how low can the China powerhouse go?

The latest growth figures from China were highly anticipated given concerns the world's second biggest economy is in the midst of a slowdown.

There was little doubt that China's annualised growth would dip from the previous reading of 7.7 per cent - the question was by how much.

The result of 7.5 percent growth in gross domestic product (GDP) in the second quarter was welcomed because it was in line with forecasts, and to use jargon from the global financial crisis, "less worse than expected" given recent sombre data releases.

AUDIO: China's economy continues to slow, but still remains strong (The World Today)

Today's result is a long way from the 12.08 per cent annualised growth achieved in 2010, as Chinese authorities continue with their strategy of a managed slowdown.

China's economy has now slowed in nine of the past 10 quarters.

Rollercoaster economy - China GDP since 1999   Source: Bloomberg

Newly-appointed Federal Treasurer Chris Bowen would also be watching the China numbers with interest, given his recent downbeat comments about Australia's economy.

Despite the slowing, the pace of economic growth in China remains stellar: urban investment grew at an annualised 20.1 per cent; retail sales expanded at an annualised pace of 13.3 per cent; and industrial output grew at an annualised 8.9 per cent

China's National Bureau of Statistics has described the results as "stable", suggesting the government does not see the need for stimulus to protect the economy from a hard landing.

While the Chinese government's official growth target for 2013 is 7.5 per cent, it remains the slowest pace in 23 years.

A significant concern for Chinese authorities is whether the slower economic times add to the jobless rate, which could result in social unrest as workers are turned away from cities when projects dry up.

The Australian dollar jumped to 91.09 US cents after the data hit, suggesting investors remain confident that China's demand for resources will continue to underpin Australia's economy.

But it is now very clear that any piece of data from China will be scrutinised and anticipated as investors hedge bets on the lifespan of the China growth story.