Reserve Bank Governor Philip Lowe.
Reserve Bank Governor Philip Lowe.

Australia and the world are facing growing prospects of a nasty global slowdown with multiple signs of faltering growth and further stagnation over the last 24 hours — and yet more rotten wage growth data here.

Preliminary estimates revealed a shock 0.1% fall in German economic growth in the three months to June, and annual growth of 0.4%, down from 0.7% in the March quarter, as tensions triggered by Donald Trump’s trade war with China hit its export-heavy manufacturing sector (the mechanism by which concerns about the trade war end up harming growth and investment are well explained by Reserve Bank Deputy Governor Guy Debelle in a speech today). And key Chinese data slowed more sharply than expected: its industrial sector lifted output by 4.8% in July, down sharply from the 6.3% jump in June and the lowest monthly reading since 2002.

Collapsing bond yields are also signalling that a recession could be near for the US and Brexit-beleaguered UK economies, and lack of confidence in growth over coming quarters here. America’s 10-year Treasury yield dropped 1 basis point (0.01 percentage point) below that of the two-year, according to Tradeweb data — the first time this has occurred since the lead-up to the 2008-09 recession. Australian 10-year bonds — the key bond to watch — remained under the Reserve Bank’s 1% cash rate for another day yesterday at 0.94%, up from the record low of 0.93% on Tuesday.

Stock markets are taking fright as well. The S&P 500 index finished down 2.93% with energy stocks leading the declines, closely followed by financials. The tech-heavy Nasdaq lost just over 3% while the Dow lost more than 3% or over 800 points. The Australian market will start with a fall of around 2% after a 128 point slump on the overnight share price futures contract. The one bright spot: the Aussie dollar ended around $US0.675.

Investor concerns about growth here look entirely justified given yesterday brought further confirmation that the government’s policy of deliberate wage stagnation continues to be a huge success. According to Wednesday’s June quarter wage price index (WPI) numbers, wages growth is mired for yet another quarter at an annual growth rate of 2.3% in seasonally adjusted terms. Wages grew just 0.6% in the quarter, seasonally adjusted, with private sector wages performing even worse, at just 0.5%, while public sector wages grew 0.8%. That’s the third quarter in a row WPI growth has been at 2.3% annual growth and it means the budget forecast of 2.5% growth has also been missed — even after it was lowered.

To add to the sense of Groundhog Day, health and social care yet again provided what little growth there was. According to the Australian Bureau of Statistics (ABS), “the most significant contribution to wage growth this quarter came from the public sector component of the health care and social assistance industry, where a number of large increases were recorded in Victoria under a plan to ensure wage parity with other states”. If it weren’t for the Andrews government giving pay rises to public servants, growth nationally would have fallen to 2.2% or even 2.1%. It also means Victoria, at least, is complying with Reserve Bank Governor Philip Lowe’s call for governments to give higher wages to public servants in an effort to lift overall wages.

Just to continue the bad news, on Tuesday, NAB’s July monthly business survey — which the Reserve Bank looks closely at — showed little change in a tepid economy, with business conditions down and business confidence up a little but still below average. NAB’s chief economist Alan Oster noted “while there were some positive signs with a post-election lift in confidence, this bounce now looks to have been short lived with confidence also tracking at below average levels in the two months since the election”.

Retailing, in particular, is a black hole (NAB called a recession for the retail sector in its May survey). “Weakness in the retail industry continues to stand out, with conditions in that industry at recessionary levels — and declining further in the month. A worrying result, given we expected some boost to the industry following the post-election tax cuts.”

Yes, remember how those tax cuts were going to boost the economy, Rudd style? We’re still waiting.

Peter Fray

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