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HSBC chief economist Paul Bloxham talks to AccountantsDaily about business confidence, consumer confidence and what is happening in the Australian economy right now.
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Q&A: Paul Bloxham discusses the state of the economy
17 October 2014
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10 minute read
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How is business confidence fairing at the moment?
What we have seen with business confidence is an improvement since last year but it is still at lower levels than in previous years. I think it is taking a while for businesses to feel willing to start investing and hiring, which we need to see, and I think the key cause is significant uncertainty about the outlook. Businesses still seem to be quite uncertain about the growth prospects for Australia and I think part of that stems from being concerned about global developments as well.
What exactly is causing this uncertainty?
I think it is mostly caused by concerns about the global economy. The US is only showing a modest recovery, the European economies are actually looking weaker at the moment and there is an increasing risk that you might see another downturn in Europe. Chinese growth has been slowing a bit in the last couple of months and Japan is stagnant. I think in large part it is a global trend – we are seeing that businesses are quite uncertain about growth prospects and they're unwilling to make big investments and hiring decisions at this point because of that uncertainty.
How is consumer confidence fairing?
Consumer sentiment does seem surprisingly weak given interest rates are at their lowest level in history in Australia and the housing market is continuing to boom – those are things that would typically lift consumer confidence. I think the thing that’s constraining consumer confidence at the moment is uncertainty about job prospects. I think that’s related to the fact that business confidence is quite weak and so hiring hasn’t been picking up. I think they are interrelated – the uncertainty that businesses perceive is flowing through to their willingness to hire, which is then having an impact on consumers' confidence as well, as jobs prospects are not as strong as they might be.
What is happening in the stock market right now?
The stock market has actually fallen recently and that is part of a global trend. We have seen a solid sell-off in global equities over the past month or so and a lot of that is to do with an expectation that the US Federal Reserve will soon start to lift interest rates. Markets had rallied very strongly prior to that but with the Federal Reserve ending its qualitative easing program this month and widely expected to start lifting interest rates next year, markets have gotten the chills from the idea that the Federal Reserve might start to withdraw its liquidity from the global system.
Will that have any implications for the RBA?
It’s certainly one of the things that the RBA will be watching but I think the main thing that the RBA is watching at the moment is the labour market. I think there are some signs that the labour market is gradually improving but we need to see a further lift in employment before the RBA would consider that it might need to lift interest rates. I don’t think the RBA is going to cut interest rates any further, I think the key reason for that is interest rates are already very low in Australia and they are already doing the sorts of things you would expect them to do – they are lifting the housing market, they’re lifting the housing construction cycle, they’re supporting the economy and we have a house-price boom. If the RBA were to cut rates any further they would risk over-inflating the housing market. I can’t see the RBA cutting interest rates any further. I think the next move is up but I think we need to see further improvement in the labour market before that will occur.
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