Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go Hmmm...one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Wednesday, 4 March 2015

Economy grows by 2.5 percent in 2014

GDP growth meandering along

The ABS released the Australian National Accounts for Q4 2014 which showed the economy growing by an underwhelming 0.5 percent in the quarter and 2.5 percent over the year.

In trend terms growth was just 2.3 percent over 2014, which is below the long run average.

Looking on the bright side this completes a remarkable 93 consecutive quarters since Australia experienced a recession.


In truth, though, this was another soft result and a slowing rate of annualised GDP growth which appears to be commensurate with further monetary policy easing.


Domestic demand led by Sydney

The Domestic Final Demand picture showed that as expected the strength of the housing markets in Sydney and Melbourne have boosted demand locally.

Dwelling construction and record high building approvals are firing in both capital cities and the "wealth effect" of rising dwelling prices has improved consumption in both New South Wales and Victoria.

State Final Demand which is at best only an indicative measure remained weak in Canberra (ACT) and in the southern states of South Australia and Tasmania.

The negative year-on-year readings for Western Australia and Queensland are not unexpected, reflective of mining construction tailing away and a number of diabolical regional economies at the local level.


Contributors to growth

GDP growth of 0.5 percent for the quarter was held aloft by net exports. While non-residential construction acted as a drag it was heartening to see new housing investment contributing 0.2ppts to growth. 


Dwelling investment

Indeed the "new dwellings" component of dwelling investment improved substantially by 12.4 percent over the past year, and the Reserve Bank will be keen to see this continue over the next couple of years as mining construction declines.

Note that major renovations contributed absolutely zip to GDP - a stunning 0.0ppts.

Although Sydney has been through a renovations mini-boom, across the rest of the country the trend is at best moribund.


National and household income

While real net national disposable income increased by 0.4 percent in Q4 to be 0.5 percent over the year, in per capita terms this reading did not increase in Q4 and was negative in 2014. 

Meanwhile the most recent commodities index release showed that Australia's terms of trade are set to continue declining in Q1 2015.

At the household income level employee compensation growth has slowed markedly following on from a wage price index at a survey low reading of +2.5 percent, although gross disposable income fared somewhat better across 2014.


While interest paid on dwellings began to rise again through 2014 - and logically we should expect to see this chart rising over time due to Australia's high rates of immigration - mortgage serviceability for existing homeowners on variable rate mortgages has improved enormously since Q3 2008.


The shape of the above chart mirrors the findings of the Reserve Bank's own submission to the Inquiry into Affordable Housing which found that repayments on new housing loans when charted against household disposable income had improved dramatically to be way below the average for the past decade.

Anyone with a variable rate mortgage over the past six years will attest to the same - not that this is much consolation for first homebuyers in Sydney, granted. 

Smokes

Lastly for today, although slowing rates of GDP growth may cause a few furrowed brows at the Reserve Bank, it's far from being all subdued news.

The volume of tobacco consumption for example has declined by more than 10 percent since plain packaging rules were implemented in December 2012.

The volume of tobacco consumed is now at the lowest level in the history of the survey which dates back to 1959.

Indeed given the huge increase in Australia's population over time, in per capita terms smoking as a habit appears to be going up in a puff of...well, erm...vapour.



The Wrap

Not entirely unexpectedly this was a soft result which marginally missed expectations and won't do a great deal to change the view that interest rates are likely be cut again before the end of H2 2015.