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: we focus on the US mid-term elections, and what the outcomes might mean for Australia. 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. School’s in: qualification attainment’s on the rise, but not for STEM Australians are becoming more educated, with individuals increasingly undertaking post-school qualifications, according to recently released ABS figures. Over the past decade, overall student demand for post-school qualifications has been rising – 59% of the population aged 20 to 64 held a post-school qualification in 2008, and that share has risen to 67% in 2018 (Chart 1). The increase in qualifications has been mostly driven by higher attainment of higher education qualifications (bachelor degree and above). There has also been a rising share of people with upper-level vocational qualifications (that is, Certificate III or higher), while many people are moving up from lower-level vocational qualifications (hence the declining share of people with below Certificate III as their highest qualification). This trend towards higher-level qualifications likely reflects a combination of both rising actual demand for skills from employers and the narrative to young people that higher skill attainment is important when it comes to securing a job. Chart 1: Post-school qualifications holders as a share of population, age 20-64 Source: ABS Education and Work (Cat. no. 6227.0) Both men and women have been contributing to the rise in educational attainment, although the rise among women has been more rapid (Chart 2). In 2018, the share of women with post-school qualifications exceeded that of men for the first time. Meanwhile, a not inconsiderable gap has opened up between female attainment of bachelor and higher qualifications over males. Chart 2: Holders of post-school qualifications (left), and Bachelors and above (right) as a share of population (age 20-64) and by gender Source: ABS Education and Work (Cat. no. 6227.0) Among increasingly important STEM fields (science, technology, engineering and mathematics) however, men continue to dominate (Chart 3). Yet among both men and women, the share of people studying STEM fields has fallen over the past decade, albeit modestly. Chart 3: Holders of post-school qualifications in STEM fields, as a share of population (age 20-64) and by gender Source: ABS Education and Work (Cat. no. 6227.0) The modest decline in interest in STEM fields is a little surprising given the significant focus among governments on promoting them. The general consensus among policymakers is that STEM jobs will become more and more important as technology plays an ever-increasing role in the economy, a view backed up by research from Deloitte Access Economics that shows STEM skills are in demand by employers, and even for roles where STEM qualifications are not a prerequisite for the role. For both policymakers and employers, then, these statistics are worthy of attention, perhaps a little concern, and even further action. For more information on the Australian brief, please contact co-authors David Rumbens and Grayson Huynh UK economic briefing by Ian Stewart A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to & view previous editions at: http://blogs.deloitte.co.uk/mondaybriefing/ Slowing growth in Europe and emerging markets and October’s equity sell off have got economists pondering when the next recession might strike. Recessions are not rare. Donald Trump, born in 1946, has lived through 12 US recessions. Britain has had eight since the War. Some countries do better, but they are outliers. The Netherlands had 26 years of interrupted growth 1982 and 2008, a record matched by Australia since 1991. The International Monetary Fund reckons that economies are in a state of recession roughly 10-12% of the time. For most rich world economies recessions are like London buses – there will always be another one along. The question is not whether there will be a recession, but when will hit and how severe will it be. Caution and humility is in order here. History shows that economists’ ability to forecast recessions, even big ones, other than when on the verge of one is limited. We tend to forecast gentle movements in the cycle, not major downturns. Take the Global Financial Crisis. As recessions go this was a massive one, in the case of the UK and many other industrialised economies, the worst since the Great Depression of the 1930s. The crisis started in 2008. In January of that year economists on average forecast that UK growth would come in at 1.8%. The economy actually shrunk by 0.5%. It was not until November 2008, when the UK had already entered recession, that economists came to the view that the economy would contract in 2009. Even then the expectation was that UK GDP would shrink by 0.9%. It was more than four times as severe, with the economy contracting by 4.2%. The message is that from a distance, recessions almost always look like slowdowns. So what might turn a widely expected deceleration in Western growth next year into something worse? The US economy is running hot and the US Federal Reserve looks set to raise rates significantly over the next couple of years. This will make life difficult for emerging economies with hefty stocks of dollar debt and vulnerable to big capital outflows. US rates are low by historic standards and the Fed is sitting on more than $4 trillion of assets it bought during the crisis. US monetary tightening has much further to run. Throw in an escalating cycle of tit-for-tat in terms of trade barriers, especially if countries start to act outside the rules set by the World Trade Organisation, and things could turn nasty. While the US economy has so far seemed immune to higher interest rates and protectionism, that is unlikely to last. The effect of January’s tax cuts will fade next year. Even the US economy looks to be close to the top of the economic cycle. Two other longstanding worries have resurfaced in recent weeks. Protectionism and higher US interest rates have revived concerns that the Chinese economy could see a hard landing in 2019 or 2020. Meanwhile the spat between Italy and the EU over the Italy’s plans to increase public spending have highlighted the tensions within Europe’s monetary union. This isn’t just about the catalyst for a slowdown in growth. It’s also about the policy response. If things were to go wrong it could be harder fighting the downturn this time. The policy cupboard isn’t well stocked. Interest rates are too low to give much scope for big rate cuts. Government debt is higher than in 2007, which could act as a brake on debt financed public spending. Squabbles within the euro area and between the US and China make international coordination more difficult. Quantitative easing might come to the rescue, but further doses of cheap money and asset price inflation could prove controversial. The hope is that policymakers and politicians keep a lid on the risks and engineer a smooth and modest slowdown in growth. For 2019 that is the most likely outcome – by some way. Still, we need to be alive to events which could push us off the gentle slowdown path. The global financial crisis should have dispelled any hubris about our ability to predict growth even over the next year. OUR REVIEW OF LAST WEEK’S NEWS The FTSE 100 ended the week up 0.2% at 7,105 Economics and business The UK grew by 0.6% in the third quarter, the fastest quarterly rate since the end of 2016 The European Commission forecast that UK economic growth will be the slowest in the EU, joint with Italy, at 1.2% in 2019 and 2020 Philip Hammond, chancellor of the UK Exchequer, amended the government’s objective of balancing the structural budget by the mid-2020s John McDonnell, UK shadow chancellor, is in discussions with economist Lord Skidelsky about an independent inquiry into reducing the UK working week to four days In the US midterm elections, the Democratic Party won a majority of seats in the House of Representatives, the lower chamber of Congress, and president Donald Trump’s Republican Party retained control of the US Senate A proposal for an EU wide tech turnover tax, a 3% levy on tech giants’ revenues rather than profits, was opposed by the Nordic countries and Ireland The number of European IPOs cancelled the first nine months of 2018 in Europe, hit a seven-year high China spent roughly $32bn in foreign exchange reserves to strengthen the renminbi in October, its largest monthly intervention in nearly two years Chinese president Xi Jinping pledged to expand Chinese imports, cut tariffs and reduce investment barriers Xi Jinping also said China would support ‘necessary’ reforms to the World Trade Organisation to protect the multilateral trading system Brexit and European politics Both the UK and EU denied reaching a “secret Brexit deal” after rumours that Theresa May had secured “private concessions” from the EU on the Irish border issue Philip Hammond said it would not be “plausible or credible” for the UK to pay no financial settlement in the event of no-deal Former UK Brexit secretary, David Davis, demanded that the UK government publish legal advice from the General Attorney on any withdrawal agreement before asking MPs to vote on it UK trade secretary, Liam Fox, said the British government must have the ability to end the Irish backstop arrangement following negotiations over the Brexit transition period UK shadow Brexit secretary, Keir Starmer, has said that the Labour party would vote against a “vague or blind Brexit” and called for a “detailed, precise and substantive” agreement The UK Government refused to endorse EU spending on aid projects for the first time, citing alleged “bias” against UK-based organisations over Brexit And finally… The UK’s first upside down house opened its doors in Bournemouth, Dorset last week. The two-storey attraction features fully furnished rooms including an office and bathroom – property flipping 1 The figures in Chart 3 considers all post-school qualifications and the following STEM fields of studies: Natural and Physical Sciences (including Mathematical Sciences), Information Technology, Engineering and Related Technologies, and Agriculture, Environmental and Related Studies.