Weekly economic briefing: The Finkel Review…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.

The Finkel Review…in review

In light of the changes and challenges facing Australia’s energy sector, Chief Scientist Alan Finkel was asked by the Federal Government to undertake an independent review into the future security of the National Electricity Market (NEM). The final report was released last week.

Advances in technology, regulatory reform and the creation of new markets mean Australia’s energy sector is in the midst of a major transformation (and disruption) in the way energy is both produced and consumed.

Many consumers have experienced the negative effects of this disruption. Wholesale electricity prices in the first five months of 2017 were, for example, 2-3 times higher than the equivalent period in 20151 – the pain initially felt by large industrial and commercial users now starting to impact household consumers. The closure of several power stations, including Hazelwood in Victoria, have exposed vulnerability in the power system, and policy makers have been struggling to keep up and modernise market structures.

High prices and the availability of new technologies have driven many electricity consumers to take matters into their own hands. Approximately 5,800 MW of rooftop solar photovoltaic (PV) panels have been installed across Australia, compared to 350 MW of large-scale solar PV, and the availability of energy storage systems, smart technology, electric vehicles, and the use of demand management sees consumers driving changes to the way the electricity market operates.

Chart: Cumulative installed renewable power generation capacity, Australia



Source: Australian PV Institute, Clean Energy Regulator


The Finkel Review has outlined four key outcomes for the NEM. One of these is for the sector to better serve customer’s interests, and reward those who take actions to improve the reliability and security of the electricity system. Although much discussion following the release of the final report has focused on its recommendations around energy security and climate policy, the focus on customers will be crucial for driving innovation in the sector.

The review made a number of recommendations around how to best support customer driven innovation and competition in the energy market. These included a recommendation for the ACCC to include improving the transparency and clarity of retail electricity prices in its existing review of the market. This would allow customers to make better decisions about which product to purchase, and whether to invest in technologies such as solar and storage.

The blueprint would incentivise customers (including households) to manage their demand. It would also allow customers to extract better value from their investments such as solar panels and battery storage, by sharing spare capacity with other consumers connected to the grid.

These changes are supported by the recent report by the Australian Energy Market Commission (the rule maker for the market) that found promoting competition was essential to ensure consumers got the best deal for distributed generation, smart meter capability and storage.

Competition creates the incentive to experiment with innovative technology, because the companies who successfully develop new products that offer customers better service or a cheaper deal, inevitably gain market share. The Finkel Review hopefully provides a basis for consumer-focused innovation in the sector, and the benefits this brings, to continue to grow.

1AEMO data collected through NEO express database.

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

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/

Thoughts on the UK General Election

By about 9am last Friday my capacity for surprise had been almost exhausted by the Labour Party’s stunning performance in the General Election. Still, I was a bit puzzled by the phlegmatic reaction of financial markets to the news of a hung parliament.

There was no panicky sell off as we saw last year following the Brexit vote. The fall in the pound was a fraction of that seen last June. The FTSE100 equity index was down over 3% on the Brexit news a year ago; last Friday it rose 1%. The more domestically focused FTSE250 index also ended up slightly last Friday. Journalists, pollsters and economists may have been shell-shocked by the result but financial markets took it in their stride.

The main explanation for this stoic reaction was that markets are now betting on a softer Brexit.

You can see why. The result failed to deliver the mandate Mrs May sought when she called the election. An increase in the number of Lib Dem and Labour MPs in the House of Commons may strengthen the Parliamentary forces opposed to a ‘hard Brexit’.

In a number of constituencies there seemed to have been a backlash by Remain voters against the incumbent MP.

There’s been lots of talk too from the media and some within the Conservative Party about the case for a rethink of Brexit.

The conclusion financial markets seem to be drawing from all of this is that the odds on the UK exiting the Single Market have been reduced by the election.

That may be the case. But there are also reasons for thinking that the election may not change that much on Brexit.

Mrs May pitched the election as being about Brexit, but Labour broke through with an anti-austerity message. My sense is that the outcome of the election had more to do with austerity-fatigue than Brexit.

As my colleague, Sally Jones, has pointed out, on the substance of Brexit Labour and Conservatives are not miles apart. Both want an end to free movement of EU nationals which would make it impossible for the UK to remain in the Single Market. The Labour and Conservative leadership supported the triggering of Article 50 and an overwhelming majority of MPs in both parties duly voted in favour of doing so.

Last week getting on for 85% of voters backed parties – Conservative, Labour and UKIP – which are committed to leaving the EU and ending free movement of people. The only UK-wide party with a strong, pro-EU message, the Lib Dems, saw its vote share fall from the lows seen in 2015 (though the Lib Dems did win four more Parliamentary seats).

In the last three weeks of the campaign Labour did well picking up former UKIP voters partly because it had neutralised Brexit by voting for Article 50 and promising to end free movement of people.

The Democratic Unionist Party, on whose votes Mrs May depends for a Parliamentary majority, want, like the Conservatives, to leave the EU, end the jurisdiction of the European Court of Justice and strike a free trade agreement with the EU.

So on balance my hunch is that the course of Brexit will not be significantly changed by the results of the election. But then I expected the Conservatives to win a Parliamentary majority last week.


The FTSE 100 ended the week down 0.3% at 7,527.

International economic briefing by Ian Stewart

Economics and business

  • The UK’s General Election resulted in a hung parliament, with no single party gaining a majority
  • The governing Conservative Party remain the party with the most seats however and will attempt to form a new government, entering talks with Northern Ireland’s Democratic Unionist Party
  • Saudi Arabia, the UAE, Bahrain and Egypt all cut off diplomatic, trade and travel relations with Qatar, citing Qater’s alleged support for terrorism
  • Euro area growth was upgraded to an annual rate of 1.9% in Q1, following better-than-expected performances in France, Italy and Greece
  • Purchasing managers’ data indicated strong growth of activity in the euro area services sector in May, with especially rapid growth in France and Spain
  • The ECB removed a reference in its regular monetary policy statement to the possibility of future reductions in interest rates, suggesting growing confidence in the euro area recovery
  • UK industrial output rose by a slower-than-expected monthly rate of 0.2% in April, with weakness in both the manufacturing and constructing sectors
  • Two separate surveys, compiled by the British Retail Consortium and Barclaycard, suggest that consumer spending is continuing to slow in the UK
  • New car registrations in the UK fell 8.5% in May, with the Society of Motor Manufacturers and Traders saying buyers held back ahead of the General Election
  • Banco Santander acquired Banco Popular for a nominal €1 after the European Central Bank (ECB) determined the ailing lender was near collapse
  • British farmers are becoming more pessimistic about the outlook for the next three years and have downgraded their investment intentions, according to the National Farmers’ Union

Brexit and European politics

  • European politicians said that they won’t change the UK’s two-year deadline to exit the EU, despite uncertainty caused by the General Election results
  • The Futures Industry Association warned the European Commission against relocating euro-denominated derivatives clearing activity away from London, saying it would be severely detrimental to the economic interests of the EU
  • A survey from the Recruitment & Employment Confederation found a sharp drop in the supply of European workers in the UK since the Brexit vote
  • The OECD called for more public borrowing and infrastructure investment in the UK, as the prospect of a ‘hard’ Brexit potentially takes its toll on growth

And finally…
The Chinese government are preparing a law to set the tempo at which the country’s national anthem can be sung, with state-run media decrying the fact the “anthem is casually used and sung in an unsolemn manner” – fast and furious.

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