Weekly economic briefing: The ultimate barometer – voting with your feet

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 ultimate barometer – voting on your feet

We all know that Australia’s population is growing quickly. The nation’s resident population ticked over 24.6 million in June 2017, an increase of 388,100 people, or 1.6%, over the year. Supercharged population growth in Melbourne (+2.7%) and Sydney (+2.0%) led the charge. There is no better performance benchmark than when people vote with their feet.

For the first time, the ABS has released the detailed drivers of population change for Australian cities. Sydney continues to be the destination of choice for new migrants to Australia (chart 1). Close to one in three new arrivals to Australia in 2016-17 came through Sydney, followed by Melbourne (27%) – attracted by their high profile and good job prospects.

Chart 1: Components of population change, Greater Capital City Areas, 2015-16 to 2016-17

Source: ABS 

But for those already living in Sydney, the story is different. New South Wales has a long history of people leaving the State. But the pace of the exodus from Sydney is rising. Rising housing pressures and increasing living costs have dominated headlines (and mortgage accounts) in recent years. And it seems these are pushing residents elsewhere, as well as acting as a deterrent to those from other States thinking of making a move to the harbour city.

New data from the ABS also shows us more reliably where they’re moving to. Overwhelmingly they’re headed to sunny Queensland – accounting for almost half of new interstate arrivals into the State (chart 2). As Queensland’s economy improves, cheaper housing relative to Sydney is likely a major draw card.

Chart 2: Gross interstate migration flows, New South Wales and Rest of Australia, 2016-17

Source: ABS, Deloitte Access Economics

Sydneysiders aren’t the only ones skipping town. The other notable exodus of people is from Western Australia, following the peak of the mining construction boom. WA lost nearly 12,000 people to other States in 2016-17, up from about 2,000 people in 2014-15.

The droves of people leaving NSW and WA have benefited Victoria, supporting jobs growth, and are a sign of economic success. But the large numbers are also creating rising congestion and unaffordability pressures in Melbourne. We may see that tide turn in coming years.

Too much of a good thing?

The strong population growth in some of our cities is putting increasing strain on our infrastructure, and our cities’ affordability and liveability. These, without appropriate mitigating policies, are the costs of strong population growth. And this is where much of the current public debate – especially on the overseas migration intake – lies.

But how would Australia fare with zero net international migration?

We modelled such a scenario with our Deloitte Horizon forecasting model – a model designed to look at risks and scenarios to the baseline economic outlook.

Given the support to population levels, there should be little surprise that under a zero net international migration scenario, nearly all sectors of the economy would be significantly smaller than under our baseline forecasts. A smaller population, an older population and a less productive workforce would all weigh on the economy. Only the mining and farming sectors would be relatively unscathed, since they service global markets. From a geographic perspective, New South Wales and Victoria – the two States that currently benefit the most from strong population growth – would feel the most economic pain in this scenario.

Federal Budget

It’s a big day for economists with the Federal Budget being delivered tonight. Deloitte will have its comprehensive Budget summary available early tomorrow morning on Deloitte’s Federal Budget website. If you do not want to miss out,you can pre-register to receive a copy of the report in your Inbox!

 

For more information on the Australian brief, please contact co-authors David Rumbens and Harry Murphy Cruise.

 

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/

Nine things you (may) not know about international trade

  • Trade liberalisation boomed and has busted A post-World War II wave of liberalisation reduced barriers to trade and helped fuel a global boom in exports. The Uruguay Round of negotiations between 1986 and 1994 marked the high point of this process. It was the largest ever trade negotiation and significantly reduced barriers to trade in goods. Since the 1990s the momentum of trade liberalisation has slowed, and since the financial crisis, almost ground to a halt. The election of Mr Trump, an ardent critic of the international trading order, is indicative of how much things have changed.
  • Trade has helped lift global growth
    Since the War trade has grown far faster than country GDPs, acting as an engine of global growth and prosperity. The share of global GDP accounted for by exports of goods and services has risen from 12% in 1960 to almost 30% today. Since 2008 growth in trade has slowed and has increased at about the same rate as global GDP.
  • Proximity matters in trade
    Despite decades of globalisation most trade happens between neighbouring countries. Trade flows within regions, such as Europe, are far greater than trade flows between regions or continents. The UK, for instance, exports about 50% more to Ireland than it does to China.
  • History helps too
    Close historical ties can help counter the dampening effects of distance on trade. The UK exports more to the US, Australia, Hong Kong and New Zealand, than distance alone would suggest.
  • Growth rates drive demand for imports
    It’s easier to sell more to countries which are booming. Since the turn of the century emerging economies have grown at four times the rate of the euro area. This has contributed to a shift in the pattern of UK trade, with the share of UK exports of goods and services going to the EU falling from 54% in 2000 to 43% in 2016.
  • Small, rich economies are most exposed to trade Small economies tend to be most open to trade and large, continental economies least open. Thus Luxembourg, Belgium and Singapore export and import far more as a share of their GDP than China, the US or Australia.
  • The UK runs a trade deficit
    The UK has run a deficit on trade in goods and services for 52 of the last 70 years and every year since 1998. The lion’s share of the deficit is concentrated on trade with Germany, China, Spain, Belgium, the Netherlands and Norway. In 2016 the UK ran trade surplus with 67 countries, including the US, Ireland, Switzerland, the United Arab Emirates, Saudi Arabia, Australia and Brazil.
  • The UK is a world class consumer of goods and producer of services The UK has recorded only six surpluses in trade in goods since 1948. It has recorded a surplus in trade in services in all but five years since 1948 and in every year since 1966. The UK is the world’s second largest exporter of services after the US.
  • The US and UK report trade surpluses with each other The US and UK trade numbers do not balance. The UK reports a surplus of £10bn on trade in goods with the US and a $34bn surplus on trade in services. The US claims a surplus of $1bn on trade in goods and a $13bn surplus on trade in services. One partial explanation for the gap is that the US recognises the Channel Islands as part of the UK, whilst the UK does not.

OUR REVIEW OF LAST WEEK’S NEWS

The FTSE 100 ended the week up 0.9% at 7,567.

International economic briefing by Ian Stewart

Economics and business

  • Donald Trump will extend the steel and aluminum tariff exemptions afforded to the EU, Canada and Mexico for another 30 days, until 1 June 2018Donald Trump will extend the steel and aluminum tariff exemptions afforded to the EU, Canada and Mexico for another 30 days, until 1 June 2018
  • The US demanded that China cut its trade deficit by $200bn, twice the amount initially demanded in March
  • Euro area growth slowed to a quarterly rate of 0.4% in Q1 from 0.6% in Q4, its slowest rate of growth for a year and a half
  • Euro area manufacturing and services PMIs – indicators of the health of those sectors – fell to 13-month and 18-month lows respectively in April
  • German retail sales fell for a fourth consecutive month in March
  • Growth in unsecured lending in the UK continued to slow
  • The National Institute of Economic and Social Research expects the Bank of England to raise interest rates in August as opposed to May, followed by “rises every six months for the next two years”
  • UK manufacturing investment plans hit a four-year high in April, according to the Bank of England’s regional agent survey
  • LinkedIn data suggests that the UK became a net exporter of workers to the EU in Q1
  • US core inflation, which strips out energy and food prices, rose to 1.9% in March, its highest level in 17 months
  • Argentina raised its interest rate to 40% in a drastic attempt to control runaway inflation and stabilise its currency
  • The California Supreme Court introduced rules to make it harder for companies to classify workers as independent contractors rather than employees
  • Toyota will open a European start-up office in London to develop new transport services such as car-sharing and ride-hailing
  • The average Spaniard has become wealthier than the average Italian for the first time, according to the IMF
  • Royal Bank of Scotland announced that it will close 162 branches in England and Wales, making almost 800 people redundant
  • Facebook announced plans to offer a dating service for its single users
  • Six in ten members of the Institute of Directors believe that their organisation will be fully compliant with the new General Data Protection Regulations

Brexit and European politics

  • The UK’s Brexit cabinet committee rejected Theresa May’s plans for a “customs partnership” with the EU on the basis that it would be “unworkable”
  • Michel Barnier, the EU’s chief Brexit negotiator, said that without a deal on the Irish border before June, “there is a risk [of a disorderly Brexit]”
  • Following the inconclusive Italian elections the country’s president Sergio Mattarella said, “no prospect of a governing majority has emerged”
  • In response to the UK’s departure from the EU the European Commission proposed to eliminate longstanding EU budget rebates
  • The proposal attracted immediate criticism from wealthier net-contributors to the EU budget including the Netherlands, Austria and Denmark

And finally…

  • A popular rock-climbing spot in China has opened a 330ft-high convenience store on the side of a cliff in Hunan, China. Workers can only reach the store to replenish supplies via a zipline – inconvenience store

 


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