Australia has joined other countries with polls and betting markets proving very inaccurate in forecasting the 2019 federal election outcome.
My article suggests that studying polling trends would have been accurate.
In my August 2018 post, I noted a suite of indicators that Australia’s economy was slowing significantly. It is only in May 2019 that official forecasts have been revised downwards to reflect he long-evident facts.
The Reserve Bank of Australia have announced their downwards revision on the eve of Australia’s federal election on 18 May 2019.
Those who read my August 2018 post will have had plenty of time to prepare for this slowdown.
My latest report on Australia’s economic outlook is sobering, but essential, reading.
In November 2018, our wisdom of the masses tracking survey indicated an increase in the likelihood of a severe economic slowdown. At that time the Reserve Bank of Australia was predicting 3.5% growth in 2019 and the federal government was nearly as optimistic. The Reserve Bank lowered their forecast to 3% only in February 2019.
As of 6 March 2019, we know that the economy slowed significantly in the December 2018 quarter to be only 2.3% higher than a year earlier. There is little comfort across a range of indicators that there will be any improvement in the March 2019 quarter.
On a quarter-to-quarter seasonally adjusted basis, Australia is now in a per capita economic recession for the first time since 2006.
Consumers are at the beating heart of the economy – both on the demand and supply sides. If we want to know what is going on, we should track their views. In aggregate, they will be more accurate than the experts!
See my wisdom of the masses expectations for 2019 for more information.
Peak car or perfect storm?
Since 1998 (when I was working at Nielsen) I have been forecasting new vehicle sales with a high degree of accuracy. In 1998, I predicted sales of 770,000 to 820,000 when the industry was forecasting 720,000. The outcome was 808,000. This was reported in BRW on 26 January 1998.
Our models have been continuously improved but there are occasional surprises. 2018 was such a year.
I have now analysed sales and the causal factors for 2018 and identified a pair of factors which have had a larger negative impact than in the past.
Several other factors were influential to a lesser degree, but it was a perfect storm. One factor may have a greater impact in 2019.
My report is available at foreseechange.com.au.
The Coalition is very likely to lose the 2019 federal election, which will probably be held in May. Three separate predictive methods all show a Labor win. Is this a repeat of 2007 when Labor won despite a strong economy? Will climate change be the deciding factor?
It is not a repeat of 2007 because the economy now is much weaker than then. But climate change does seem poised to be a very influential factor because the level of voter belief in climate change has now recovered to the same level as in 2007, across all age groups.
A detailed analysis is contained in my report, along with an assessment of the top 10 issues that will be in the minds of voters.
Australia has been lagging in infrastructure construction since I arrived in the late 1950’s. We have been playing catch-up for all that time, but we have fallen even further behind since 2007.
In addition to the transport infrastructure backlog, particularly public transport, we now need to significantly increase investment in health in order to avoid a big increase in the prevalence of several diseases.
Australia’s population growth rate has increased substantially since 2007. Net migration increased and so did births.
The peak age of net migration is 20 to 24 and so there is now a large increase in the number of people aged 30 to 34. This coincides with an increase in the Australian-born population with ages centred around 30, due to an increase in the number of births in the late 1980’s.
There is a large peak in the population aged 25 to 34 and as they age over the next 10 to 20 years, they will be of an age where the onset of several diseases increases. This includes type 2 diabetes, prostate cancer, breast cancer, and multiple sclerosis.
At the same time, the oldest of the large baby boomer generation will reaching the age where the prevalence of cardiovascular disease, Alzheimer disease, and several others increase.
Accordingly, Australia needs to invest significantly more in disease prevention as well as cure and treatment.
For details, see my report.
Retail sales growth in Australia has been very weak for several years. There is little chance of improvement over the next 18 months.
All four main economic drivers are currently either not supporting growth or negatively impacting growth. Consumer spending sentiment is quite good, but there is insufficient income growth for consumers to respond.
Then there is the imminent federal election – what impact will that have?
Scenarios for growth over the next 18 months are provided.
Retailers are facing challenges, but there is also opportunity. The report is available from foreseechange.
Economic forecasts by the Reserve Bank of Australia and in the federal budget would have us believe that our economic growth rate is improving, from around 2.6% over the past five years to 3% plus over the next three years. The run of data in July and especially August has cast doubt on this rosy outlook.
The first shock, received in the first few days of August, was that new vehicle sales fell by 7.8% in July, compared with July 2017.
Then there was the political shock. On Monday August 20 the Fairfax-Ipsos poll reported that the ALP was ahead of the Coalition parties with a two party preferred lead of 55% to 45%. By the end of the week Malcolm Turnbull had been deposed as Prime Minister. Newspoll (38 of them) had put the ALP ahead but mostly with a lead of only two percent.
I had already noted in July that tracking data from foreseechange had shown that the proportion of adults who felt they had few financial concerns had dropped to a record low – and the data has been collected since 2003. The figure was lower than at the worst of the GFC in late 2008, so this was a shock to me.
As more data has arrived, it has tended to confirm the hypothesis that was forming in my mind – Australia’s economic growth rate was not picking up as predicted by the official forecasters. Instead the growth rate might actually be falling!
Last week, National Australia Bank released the June 2018 quarter survey of its consumer anxiety survey. It showed a very large increase in anxiety compared with the March quarter. The index is composed of several factors such as job security, cost of living, and ability to fund retirement. The anxiety index had been falling for a year, so this too was a shock.
Today, data released by the ABS showed that private capital investment fell in the June quarter, against all expectations. Another release showed that dwelling approvals, which peaked in June 2016, were falling after a sub-peak in late 2017.
Automotive fuel price inflation is up sharply with a big rise in the price of oil and a drop in the Australian dollar against the US dollar. This is reducing consumer discretionary spending power, adding to the misery of continued very weak wages growth.
Employment growth has slowed sharply after the biggest boom in history in the year to January 2018.
Business confidence and conditions, to July, have been trending down since April.
The first week of September is a big one for economic data releases – July retail sales data and June quarter GDP data.
In September 2017, in a regular survey of the Australian general public, foreseechange asked respondents about the likelihood that particular events would occur in the next year.
One of those was that Malcolm Turnbull would be replaced as Prime Minister. The Wisdom of the Masses estimated likelihood was a 53% chance. As a federal election was unlikely in the following year, this result means that it was perceived to be a slightly better than 50/50 chance that Turnbull would be dumped by his own party.
Just under a year later, this seems almost certain to happen today.
Another component of the foreseechange survey is canvassing opinions on the issues people feel they will be most concerned about in the foreseeable future.
Number one in June 2018 was the cost of living. Despite consumer price inflation being only 2%, at the bottom of the Reserve Bank of Australia’s target zone, consumer price expectations are over 4% and wages are only growing by 2%. Politicians have to do something about this gap if they want to be popular (so to for employers!).
Of course, there are many other issues that segments of the population are concerned about, such as housing affordability, traffic congestion, and climate change.
Malcolm Turnbull’s likely replacement as PM seems unwilling to do anything about climate change, for example.
If politicians do not understand, and act on, the concerns of all Australians then the revolving door for Australian prime ministers since 2009 looks set to continue at a fast pace.
CoreLogic-Moody Analytics latest Home Value Index Forecast says that the strength of the economy will push up Australian home prices soon (The Australian Financial Review, 22 June 2018).
Don’t count on it!
“Employment is growing around 3.1 percent year-on-year, which is comfortably above its 1.9 per cent long-term trend” the report says.
Not any more! The annual growth to May 2018 was actually 2.5% and slowing rapidly. Over the six months to May, the annualised growth rate was 1.5%. Over the four months to May, the annualised growth rate was 0.8%.
Wages growth is barely keeping up with inflation. Consumer spending growth is anaemic. How are people going to be able to push home prices up if their incomes are stagnant?
Interest rates are accommodative, but mortgage interest rates can only go up from here due to rising global interest rates.
There are also two demographic factors which suggest that demand growth will slow in the next few years.
None of this is to say that there will be a crash in house prices. But the house price boom is well and truly over for some time.
My updated analysis will be available in late July.