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Australian Budget Gap Widens More Than Forecast on Iron Ore
Australia’s government forecast a wider budget gap this year as plunging iron ore prices erode tax revenue and spending cuts are blocked by opposition lawmakers.

The underlying cash deficit will deteriorate to A$40.4 billion ($33.2 billion) in the fiscal year ending June 30, 2015 from a May estimate of A$29.8 billion, Treasurer Joe Hockey said in the mid-year economic and fiscal outlook today. The government forecast unemployment will climb to 6.5 percent by mid 2015, higher than its May projection of 6.25 percent.

“We are now witnessing the largest fall in the terms of trade since records began in 1959,” Hockey told reporters in Canberra, referring to export prices relative to import prices. “This has been faster and deeper than anyone expected.”

The currency fell and traded at 82.23 U.S. cents at 2:46 p.m. in Sydney from 82.29 cents before the revised forecasts were issued. Traders are pricing in at least one rate reduction by the Reserve Bank of Australia in the next 12 months, according to a Credit Suisse Group AG index based on swaps.

http://www.bloomberg.com/news/2014-12-15...n-ore.html

Australian resources jobs disappearing as commodity prices dive
THE AUSTRALIAN DECEMBER 16, 2014 12:00AM

Sarah-Jane Tasker

Reporter
Sydney
JOB vacancies in Australia’s resources space declined more than 30 per cent this year, tracking the fall in commodity prices.

The DFP Mining and Resources Job Index for November, to be released this week, declined 4.2 per cent last month to 60.90, adding to a fall of 33 per cent this year for advertised permanent positions. Contract and temporary roles have fallen 25 per cent.

The falls show a continued correlation between the DFP Mining and Resources Job Index and the RBA Bulk Commodity Price Index.

“The principle hiring factor driving the reduction in advertised vacancies is the price of commodities,” DFP chief executive Robert van Stokrom said.

“The RBA reported a 4.5 per cent fall in bulk commodity prices in November in Australian dollar terms. Iron ore and coal prices are the lead indicators for demand for staff, and a further softening in the employment market seems inevitable.”

The price of iron ore has more than halved since January and the price of thermal coal has been so low that expansions and new projects have been shelved this year.

In a report, Credit Suisse’s team of mining and metals analysts outlined that the coal markets looked particularly bleak mid-term, and prices could not recover until oversupply ended. “China protecting its miners is another emerging problem that may make production sticky and cause lower prices,” the investment bank’s team said. “Coal imports face tariffs, and China may lower tax on local iron ore.”

Mr van Stokrom said Western Australia’s relative strength in the mining and resources sector, opposed to coal-dominated Queensland, left it with more than half of all vacancies advertised nationally. Vacancies in Queensland are now half of those recorded 12 months ago.

“Demand for mining and resources staff in Queensland is certainly aligned to coal prices, with a 30 per cent decrease in advertised vacancies consistent with the 24 per cent drop in coal price over the last 12 months, strengthening that correlation,” Mr van Stokrom said.

Across the board, mining and petroleum engineers were the hardest hit with an 80 per cent decline since June last year.

Mr van Stokrom said that arguably some of the November fall in the index could be attributed to “slowing” towards the end of the year.

“DFP Consultants are reporting that clients with staffing requirements are frequently electing to hold off until the new year,” he said.

A Queensland farming family shares personal story of bank foreclosure and being forced off their land

It's a silent crisis affecting a growing number of Australian producers.
Audio: Rural debt is rarely talked about by farmers, but one farming family is speaking out. (ABC Rural)

A grain and cattle farming family in south-east Queensland is using its own painful story of bank foreclosure to encourage other Australian farmers to speak out about rural debt.

"It was the most terrible day of my life," recalled Queensland farmer Tanya Brooks.

We're staying at emergency housing at the moment. We wouldn't know where we'd be otherwise
Tanya, farmer

"People turned up, there were removal trucks, there were police. When they come over the grid and you see it, it's just shocking," Mrs Brooks said.

"We've tried so hard. The kids find it hard coming back here because it was such a terrible situation we went through on that day and it has bad memories."

While banks are reluctant to release the figures, there's growing concern that Australia is in the grip of a rural financial crisis, as more farms fall into the hands of banks.

For producers in pockets of Australia, property prices have decreased so dramatically in recent years that for many, their debt is higher than the value of their farm.

Last week, ANZ Bank said it would stop foreclosing on drought-stricken farms for the next 12 months, and pressure is mounting on other banks to do the same.

It's a silent crisis, with stakeholders hesitant to reveal the extent of the problem.

The banks dispute there's a rural financial crisis, because acknowledging it would draw their lending practices into question and could push property prices lower.
Audio: Tanya Brooks says being evicted was "the worst day of my life" (ABC Rural)

We had 28 irrigation pipes and tyres stolen. People were just coming in and helping themselves.
Tanya, south east Queensland farmer

Furthermore, federal and state governments play it down, because if they acknowledge there's a crisis, it means they need to fix it, at a potential cost of billions of dollars.


Read more here...

Reserve Bank economists say job losses in mining industry are not a bad thing

December 18, 2014

Gareth Hutchens

The large fall-off in mining construction in coming years will not push up unemployment, even though the resource sector is expect to shed 60,000 construction jobs by 2018, Reserve Bank economists say.

They also believe the Australian economy will be able to ride out China's delicate economic rebalancing because that rebalancing will take years and will be gradual enough to allow Australian commodity exporters to adjust.

Both predictions will be welcome news for Treasurer Joe Hockey, who announced this week a budget blowout of $10 billion in the face of rising unemployment and weak economic growth.

The RBA's December quarter Bulletin, released on Thursday, said investment and employment in Australia's mining sector grew so rapidly during the investment phase of the resources boom because mining companies were able to draw workers from other types of construction whose skills were readily transferable.

Now that the investment boom had peaked - it did so last year - the RBA predicted at least 60,000 resource construction jobs would be lost between this year and 2018 as investment projects wound up and the newly expanded mines moved into their operation phase.

However, RBA economist Mary-Alice Doyle said the bulk of those lost construction jobs would probably be absorbed by other sectors in the economy, meaning unemployment was not expected to rise significantly.

"The available data and the bank's liaison suggest that the workers released from the resources sector are likely to be absorbed by other sectors," Ms Doyle said.

"While a large number of resource construction jobs are ending, these workers' skills are reportedly quite transferable to residential and civil construction, for which labour demand is expected to remain relatively strong.

"A large share of these workers appear to have originally moved from other construction jobs, and so they have the requisite qualifications and experience to move back into non-mining construction jobs, contingent on labour demand."

Of the professional workers whose skills were reportedly least transferable to other industries, a substantial share were temporary migrants who were unlikely to remain in Australia if they did not find ongoing work, Ms Doyle said.

Another RBA economist, Gerard Kelly, said China's economic rebalancing towards domestic consumption and away from domestic investment meant demand for Australian minerals was likely to diminish in coming years.

But this was not necessarily bad news for Australia's economy, he said, because even though growth in Chinese demand was expected to slow over the next decade, this growth would be from a much higher base, and the overall volume of Chinese imports was likely to expand further.

"Chinese rebalancing is likely to be a gradual process, which means that the Australian economy should have some time to adapt," Mr Kelly said.

"Australian producers may well find alternative markets for their products, or the composition of production may alter in response to changing global demand and supply conditions.

"[And] a more developed Chinese economy with a higher consumption share is likely to involve greater demand by households for items such as food, education and tourism, which will provide opportunities for firms outside the Australian resources sector."

http://www.smh.com.au/business/reserve-b...29wwl.html

Commonwealth Bank tips rates on hold for 2015
MICHAEL RODDAN BUSINESS SPECTATOR JANUARY 08, 2015 5:50PM

Record low rates for a year
THE Commonwealth Bank of Australia is predicting that the Reserve Bank of Australia will lift the official cash rate in the first quarter of 2016, after it likely holds the interest rate at its official low of 2.5 per cent through 2015.

The CBA said, in a note released today, that it is now quite likely that the RBA will continue to sit on the sidelines through this year, rather than make a cut to the already record low cash rate, as the falling dollar and lower oil prices bind the central bank’s hands.

Previously the CBA, Australia’s biggest lender (CBA), believed an interest rate rise in the latter half of 2015 was a possibility.



The cash rate remained at 2.50 per cent during 2014, the lowest calendar year average since 1959.

The cash rate has gone unchanged for 15 straight monthly RBA board meetings.

The CBA said an initial rate rise in the first quarter of 2016 would a step toward an ultimate objective of returning the cash rate to a neutral 3.5 per cent.

The bank has held its “no change” call for the near term, despite many economic commentators pencilling in rate cuts as early as the next RBA board meeting in February.

RBA Governor Glenn Stevens noted that the economy at the end of 2014 was pretty much where they thought it would be at the start of the year, the CBA said.

Mr Stevens’ comments on “giving a message of stability and predictability” that would be “conducive to confidence” supported CBA’s view that interest rates would be unlikely to change.

“It appears that households and business now equate rate cuts with ‘bad’ economic news,” the CBA said, and a cut wouldn’t necessarily help produce the confidence and the stability the RBA favours.

The bank expects debate will shift towards a normalisation of interest rates by the end of 2015, and a return to a 3.5 per cent cash rate by the end of 2016.

“In practice, this would equate with a 25bpt rise each quarter during 2016,” the CBA said.

The big banks remain split on the outlook for rates.

In December, NAB joined Westpac in forecasting the cash rate would be cut to two per cent from its current 2.5 per cent, with both expecting the moves to begin in the first quarter of 2015.

The latest forecasts from the ANZ, issued in late November, still show the cash rate rising.

However, like the CBA’s economists, the ANZ’s research team pushed the timing of the first rise out further into the future, saying slower economic growth and weak inflationary pressures gave the RBA has scope to keep rates low for longer.

The ANZ is currently forecasting rate hikes to begin in November rather than May, with another hike in December, but acknowledges the possibility that rates might come down.

“We are reviewing our forecasts now but the probability that the next move in rates is down is the highest it has been in over 12 months,” ANZ chief economist Warren Hogan said.

Business Spectator, AAP

Why everything you think about the economy in 2015 is probably wrong

January 17, 2015

Tom Allard

Financial market convulsions; the Budget drowning in a sea of red ink; Europe on the verge of a recession and deflation; commodity prices in free fall.

The Australian economy has entered 2015 buffeted from all sides. Doom merchants and pessimists abound.

"Storm clouds" are massing; the "dog days" are upon us; "horsemen of the apocalypse" are visiting. Such has been the tone of much of the recent economic commentary.

Underpinning the malaise, is that the mining boom, most emphatically, seems over.

The reckoning comes as the prices of the four biggest resource exports – gas, coal, iron ore and copper – plunge, more than halving in the past few months. A massive investment in LNG production looks misspent. Shares in Australia's blue chip resources companies are being hammered, driving the sharemarket lower.

There's no shortage of angst, but will the boom be replaced by doom and gloom?

Not necessarily.

Both the world and Australian economies are going through a titanic structural adjustment. With it will come turmoil, and no shortage of market ructions.

But there's plenty of reasons to be optimistic. With change comes opportunity, and the economic opportunities for Australia are very rich indeed.

The end of the mining boom is not the end of the world

The mining industry drives the Australian economy, right? Not exactly.

Unquestionably, the rapid expansion of the resources sector has contributed substantially to economic growth, investment and national income over the past 10 years.

How much remains a matter of debate though. The economy actually grew faster in the ten years preceding the boom, which kicked off in earnest in 2004.

Even so, the ferocious political debates about the mining and carbon taxes and their alleged threat to our prosperity, not to mention the eye-popping profits and salaries of the mining companies, made it easy to overestimate the sector's importance to the economy.

According to polling conducted by the Australia Institute, on average Australians who were surveyed believed mining makes up more than one-third of the economy.

In fact – and even after more than doubling in size over the past decade – mining (and related industries) still accounts for less than nine per cent of economic output, roughly on par with financial services and construction.

In terms of employment, its contribution is even less remarkable - just two per cent of the workforce in 2013/14, ranking it the 15th most important job-creating industry.......................................

http://www.smh.com.au/business/the-econo...2iouc.html

Rate cut likely as spending slows
DAVID ROGERS THE AUSTRALIAN JANUARY 22, 2015 12:00AM

Consumer sentiment Source: TheAustralian
CONSUMER sentiment has remained weak despite a bounce this month and further cuts in official interest rates may still be needed to guard against a downturn in the economy.

The Westpac-Melbourne Institute Index of Consumer sentiment rose 2.4 per cent to a seasonally adjusted 93.2 in January, from 91.1 in December, but stayed well below the “neutral” 100 level.

A slight improvement in official employment data for December would have boosted confidence this month, and a sharp fall in petrol prices would also have been a positive factor, Westpac chief economist Bill Evans said.

“Having said that, movements in the components of the index were disappointing,” Mr Evans added.

Despite the sharp falls in the economic outlook components in December there was essentially no bounce-back in January.

The sub-index tracking expectations for economic conditions over the next 12 months fell 0. 7 per cent and the sub-index on economic conditions over the next five years fell 1.6 per cent.

Australia’s official unemployment rate slipped to 6.1 per cent from a downwardly-revised 12-year high of 6.2 per cent in Dec­ember, indicating that more people were finding jobs.

At the same time, household disposable income probably rose, as the average national pump price of petrol fell 17 per cent to a six-year low of $1.10 a litre in January.

The combination of record low interest rates, record house prices, rising employment and lower fuel prices may fuel a recovery in consumer sentiment this year.

But the Australian economy faces headwinds as economic growth in trading partners including China, Europe and Japan continues to slow.

Both the World Bank and the International Monetary Fund subsequently recently lowered their global growth forecasts due to a sluggish outlook outside the US.

Financial markets still predict that the Reserve Bank will cut official interest rates this year to offset a downturn in growth caused by plunging commodity prices and a downturn in mining investment after a decade-long boom.

Mr Evans continued to predict the Reserve Bank would cut interest rates in February and March, taking the official cash rate down to a record low of 2 per cent.

“We expect that by the time of the release of the inflation report next week the case for a rate cut will have been made,” he said.

“A February decision can be fully explained in the Statement on Monetary Policy released three days after the decision, including the opportunity to update inflation forecasts.

“Delaying the move to March, which seems to be favoured by markets, makes the Statement much more awkward, particularly if, as we expect, the bank’s inflation forecasts will be lowered significantly.”

The weekly ANZ-Roy Morgan Consumer Confidence index rose 1.4 per cent to 113.6 in the past week, bringing the index back up to the long-run average, but the data was not seasonally adjusted and might have benefited from a seasonal uplift, ANZ said this week.

Prices up, making interest rate cut unlikely
THE AUSTRALIAN JANUARY 29, 2015 12:00AM

Adam Creighton

Economics Correspondent
Sydney

Rate cut unlikely

MORTGAGE holders may have to wait for a further, record-breaking interest rate cut by the Reserve Bank after a new report showed consumer prices rose faster than expected in the lead-up to Christmas, making it harder to justify a rate cut.

The global oil slump, which meant the price of unleaded petrol across Australia fell to a six-year low of $1.17 in December, has helped drag Australia’s annual inflation rate down to 1.7 per cent, the lowest in almost three years, from 2.3 per cent in September.

The Australian dollar jumped back above US80c yesterday after the Australian Bureau of Statistics’ December-quarter inflation report showed prices rose only 0.2 per cent in the three months to December, but that underlying inflation — which strips out volatile items such as petrol — rose 0.7 per cent.

“The higher-than-expected readings on underlying measures suggest that the Reserve Bank will need to see a pullback in ­activity before deciding that a further cut in rates is necessary,” said Savanth Sebastian, an economist at CommSec, who expects the ­Reserve Bank to continue foreshadowing a period of interest rate stability, as it has done for a year, when it considers rates next week.

“Whichever way you cut it, inflation is not a threat to the economy and the Reserve Bank will not be feeling any additional pressure to move rates in any direction any time soon.”

Despite a fall in the Australian dollar of about US15c, to just less than US80c, since the middle of the last year, prices of tradeable goods actually fell 0.6 per cent in the December quarter.

“This confirms our view that global disinflation and retailers’ limited pricing power are partially offsetting the impact of the lower dollar,” said Riki Polygenis, an economist at ANZ, who with most economists expects the underlying inflation rate to fall gradually this year.

Investors have been keenly awaiting an update on inflation to gauge whether the Reserve would join a throng of central banks — including those in Canada, Switzerland and Denmark — by easing monetary policy to fend off mounting global deflationary pressure.

“Given the pick-up in global headwinds and renewed upward pressure on the Australian dollar, we now expect the RBA will judge the path of least regret is to trim the cash rate further to ‘insure’ the economic recovery, and protect the dollar’s recent fall,” said UBS chief economist Scott Has­lem, who has joined a chorus of economists expecting interest rate cuts over the next six months.

Apart from petrol prices, which fell 8 per cent over the course of last year, the biggest price falls were computing goods, down 5.2 per cent between September and December.

By contrast, holidaymakers endured price increases of 5.8 per cent in domestic accommodation and travel, and smokers a 4.8 per cent rise in the price of cigarettes.

While the price of building new houses rose 1.1 per cent over the three months, rents rose only 0.5 per cent, their slowest quarterly pace in almost 10 years.

Prices in futures markets implied the probability of a February interest rate cut fell to 10 per cent yesterday, down from about ­30 per cent a day ago.

“The RBA is likely to use next week’s meeting as an opportunity to frame any potential cut or shift in bias in a positive light. This would be more consistent with governor (Glenn) Stevens’s desire to provide ‘steady and predictable’ policy,” Ms Polygenis said.

Too early to cut. I find that rba actions are behind the curve. However I still expect further cut if currency remain at current level

(28-01-2015, 11:52 PM)newbie11 Wrote: [ -> ]Too early to cut. I find that rba actions are behind the curve. However I still expect further cut if currency remain at current level

Very likely currency will dip below 75 cents to usd this year given the recent commodities crash, which does not seem to be fully price in yet.

Asx still strong at above 5000+ level and so are property markets. Unemployment is only slowly trending upwards to 6%

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