Weekly economic briefing: 2017 – Year in Review

The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox!

In this week’s blog:

Australian economic briefing
UK economic briefing
International economic briefing

Australian economic briefing by David Rumbens

This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia.

2017 – Year in Review

This is the final Weekly Economic Briefing of 2017. Despite many risks, the Australian economy has performed well over the year, ending the year with a surge of jobs and business investment, and providing some momentum going into 2018.

Economic performance in 2017 – the unders and overs

Starting broadly, the Australian economy delivered its expected growth performance during 2017. Compared to the forecasts we made at the end of last year, GDP growth during 2017 was right on track, with a lift in activity through the year (see Chart 1). And supporting that expected outcome – price growth, the exchange rate and record low interest rates (which stayed put all year), also played out in line with forecasts made a year ago.

Chart 1: GDP growth in 2017 – actual (light green) and forecasts (dark green)

Source: ABS National Accounts and Deloitte Access Economics Business Outlook, December 2016

 

But not all components of economic performance played out as expected. Broadly, businesses had a stronger than expected year in 2017 but consumers fared worse.

This environment has put a pinch on consumers. Wage growth has remained low through the year, which flowed through to lower than expected consumer spending. Housing investment has also pulled back, following a period of overbuilding.

Overall property price growth has also ended the year less frenzied than it started the year, with traditional frontrunner, Sydney, seeing residential property price growth of just 5% over the year to September, though Melbourne and Hobart are still running strongly. The apartment market has seen most of the brunt of the cooling market.

On the other hand, there have been some very pleasant upside surprises. Improved business confidence across the economy led to stronger employment growth and business investment than expected. Job gains of 360,000 over the year to October are a stunning show of strength, and build on the high level of business sentiment seen through the year. Businesses are also now reaching deeper into their pockets to fund investment – the first time we have seen a lift in business investment in four years. And those factors are getting some impetus from a global economy which has also lifted its growth rate though the course of 2017.

Auto-pilot economy

2016 was the year of the Black Swan, during which outcomes such as Trump and Brexit surprised internationally.

But 2017 has been the year of “business as usual”. Overall economic growth ticked along largely as expected, and in the absence of any active monetary policy (the RBA flicked the switch to auto-pilot and kept the cash rate steady all year), we travelled along very smoothly.

More specifically, we saw lower volatility across some key indicators than in previous years. The Australian dollar traded against the $US between the narrow range of just $0.72 and $0.81. This 9 cent range is the smallest within a year since 2010. The share market saw similarly low levels of volatility, with the ASX200 hitting a peak of 6,052 in November, from a low of 5,582 in January. The 8.4% range from lowest to highest compares with a median annual trading range of 21.3% since 2000 (with a 98% range in 2008).

The risk factors remain

The key economic risks for 2017 may not have been triggered, but nor have they disappeared either. There is every chance the RBA and other policy makers will need to turn off auto-pilot and grab the wheel again in 2018. Key risks include:

  • Political uncertainty and trade – Global economic growth has lifted in 2017 as have trade volumes, despite protectionist rhetoric. However, there is still the risk that such rhetoric becomes more action focused. If a global trade war does eventuate with increasing protectionism, many businesses in Australia with global linkages are potentially exposed.
  • Reliance on China – If economic growth in China slows, this poses a significant risk to Australia, which has never been more economically reliant on the Asian superpower. China’s ongoing battle with high debt levels, financial industry risks, falling working age population and environmental degradation means there’s room for China to stumble, and if that happens, Australia may be headed for a recession.
  • Housing downturn – An economic downturn in Australia could lead to a correction of the inflated housing market. With Australia carrying a world leading level of household debt (beaten only by Switzerland) and with very low interest rates already, we have limited policy power to soften the blow if investors move out of the housing sector en masse. That said, a strong rate of population growth does provide good ongoing support for Australia’s housing sector.

For more information on the Australian brief, please contact co-authors David Rumbens and  Adelaide Timbrell.

 

UK economic briefing by Ian Stewart

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/

Six news stories for Christmas

  • Here is our choice selection of the “and finally” news stories from the Monday Briefing in 2017. Credit goes to my colleagues for tracking down these stories and for forging the right pun or quip. The Monday Briefing is taking a break until Monday 8th January. In the meantime the Deloitte economics team – Ian, Debo, Alex, Rebecca and Tom – wish you a very merry Christmas and a happy New Year.
  • British civil servants have been asked not to bring cake into work because it could be a “public health hazard” to “those who have difficulty resisting”, according to a Civil Service blog by a member of the Treasury’s “Wellbeing Workstream” – exsponged
  • Despite a new Paddington Bear film and apparent popularity among artisan producers and cocktail makers, marmalade is increasingly the preserve of older UK consumers; with just 1% of sales of the once popular orange spread now going to under 28 year olds – Middle Aged Spread
  • An 80-year-old woman delayed a flight to Shanghai after throwing coins into the plane engine superstitiously believing it would bring good luck – on a wing and a prayer
  • A workman fixing an ATM in Texas was saved by police officers after getting stuck in the room behind the machine and sending ‘help me’ notes through the ATM receipt slot – A Trapped Man
  • An autonomous security robot designed to spot misdemeanours, criminals and parking violations in a Washington DC shopping centre has had to be decommissioned after apparently taking its own life and driving into a fountain – Darth Wader
  • The French president, Mr Macron, came under fire for spending €26,000 on a makeup artist in the three month period since he entered the Elysée Palace – Moolah-rouge

P.S. UK wage growth remains well below the current 3.1% inflation rate. However we think that record job vacancies, low unemployment and slowing immigration are likely to bolster wage growth next year

P.P.S. The first EU summit in over two years took place last week. Ahead of the summit, Donald Tusk, European Council president, criticised the current EU asylum policy, branding mandatory refugee quotas “ineffective” and “highly divisive”. The subsequent row between EU leaders highlighted deep divisions between the group of central European countries, including Poland, Hungary, the Czech Republic and Slovakia, and the Western EU pro-quota countries. Mr Tusk acknowledged how “when it comes to migration, it divides [the EU] between east and west”. Angela Merkel added “we don’t need just solidarity for the management of borders, but we also need solidarity inside [the EU]”

OUR REVIEW OF LAST WEEK’S NEWS

The FTSE 100 ended the week up 1.22% at 7,491.

International economic briefing by Ian Stewart

Economics and business

  • Dixons Carphone profits fell 60% as customers put new phone upgrades on hold
  • The ECB substantially upgraded its forecast for euro area economic growth, from 1.8% to 2.3% in 2018
  • Employment and industrial production accelerated strongly in the euro area
  • UK inflation rose to 3.1% in November, but the BOE voted unanimously to keep rates unchanged in the last monetary policy committee meeting of the year
  • The US Federal Reserve raised interest rates for the third time this year as expected, and forecast another three 0.25 percentage point raises in 2018 and two in 2019
  • The People’s Bank of China boosted its key interbank policy rates by five basis points in response to the Fed’s 25 basis point increase
  • President Trump suffered a setback as scandal-hit Republican Senator Roy Moore lost an election to Democrat Doug Jones
  • Disney is to buy 21st Century Fox in a $66bn landmark deal which has far-reaching implications for the media industry
  • Ratings agency Moody’s warned that car makers face a difficult 2018 as a result of slowing demand in key markets
  • Online UK retailer Ocado says a shortage of delivery drivers in some regions has forced it to increase pay

Brexit and European politics

  • The EU27 leaders agreed to move onto discussions about the future UK/EU trading relationship
  • The UK government lost a key Brexit vote after a Tory rebellion. The vote guarantees MPs a vote on the final Brexit deal
  • Brexit secretary David Davis warned of a “very compressed timetable” for Brexit after the government defeat
  • Donald Tusk, the head of the European Council said the UK and EU face a “furious race against time” to finalise Brexit talks before March 2019
  • FT research shows that banks are set to move fewer than 4,600 City Jobs after Brexit, just 6% of the workforce operating in the financial centre

And finally…

Research from the environmental charity Hubbub revealed that one in four Christmas jumpers bought last year were thrown away or are unlikely to be worn again – over the top


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