Insight
Australia’s economy holds up amid global slowdown
Sharon Klyne, Associate Director, Institutional Communications | December 2018
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The Australian economy is proving to be extremely resilient in the face of global uncertainty, supported by strong demand for Australian commodities and government programmes to stimulate the economy, according to ANZ’s Head of FX and G3 Research Daniel Been.
The Australian economy is proving to be extremely resilient in the face of global uncertainty, supported by strong demand for Australian commodities and government programmes to stimulate the economy, according to ANZ’s Head of FX and G3 Research Daniel Been.
Speaking at ANZ’s Aussie Day event in Hong Kong last month, Been said: “Where we are now at is a pretty good spot… Despite the slowdown we’ve had in global growth, our terms of trade have been rising and they have been rising sharply.”
There continues to be strong demand for Australian coal and iron ore, and for Australian producers, the lower Australian dollar has added further to profits, he noted.
“What we are selling is in high demand and the prices we are getting for them are working to our advantage,” he said.
While not without risk, the outlook for the Australian economy in 2019 is still positive. However a number of swing factors such as the housing market, wage growth and the value of the Australian dollar will be critical to the resilience of that growth, according to Been.
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Where we are now at is a pretty good spot… Despite the slowdown we’ve had in global growth, our terms of trade have been rising and they have been rising sharply.”
daniel been, head of fx and g3 research, anz
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The housing market in Australia is undergoing a correction, in a slowdown which has predominantly hit the investor market and interest-only mortgages.
House prices are falling in regions where there is a high proportion of investors, while the owner-occupied segment of the housing market is holding up relatively well.
However, the risks on this front are growing. “Even if we do see some further slowing, we think that given the broader dynamics of strong employment, low interest rates, high population growth, this is not a question of housing driving Australia into a recession,” said Been.
Participants at the event also heard debt issued by Australian companies and financials has held up relatively well amid the volatility in emerging markets. “We’ve had a year of outperformance; we’ve seen Australian credit get upgraded almost three to one times by the rating agencies,” said Owen Gallimore, head of credit strategy and research.
“Bond performance has been stable and stoic against the volatility we see coming out of China,” he said.
Non-investment grade borrowers have bore the brunt of volatility, having to pay double-digit interest rates to get one to two year funding, according to Gallimore.
“But there are high cash balances into year-end and a very heavy debt redemption calendar of US$150 billion next year. There is a lot of cash to be put to use and reinvested,” he said.
Aussie Day is a roadshow in Asia to connect Australian issuers with a diverse base of Asian investors. This year’s event held in Hong Kong, Tokyo and Seoul saw 10 Australian borrowers meet 170 investors through half-day seminars and one-on-one meetings.
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