The Global Correction: What's Going On?

Global markets have taken a battering over the last week, and Australia certainly has not been immune. We are increasingly appreciating that the air of immunity that has hung over us for over a decade has been somewhat intoxicating.

Australian shares are now down more than 14 % from their recent peak in November. Another way to put this is that average share prices have given up most of 2007's stellar gains and have fallen to last quarter of 2006 prices. The shareprice of Qantas has notably been one of the casualties, with the few that have benefitted being food producers, such as AWB.

Already the tough-nut, hardened experts are shrugging off the "correction", noting that when shares fall 20 % in a day, that's a crash.

Nevertheless, Australian shares have fallen slightly more than US shares, despite the fact that the Australian economy seems to be in far better shape. Unemployment in the US is rising, and new home approvals is at the lowest level in 27 years.

Both Australia and the US are indeed suffering inflation, led by rising food and energy costs. Growth indicators are far stronger in Australia, but unsustainably so (for example, retail sales and job vacancies growth of the order of 7 % annually). Australian banks and other financial institutions seem in far better shape than similar institutions in the USA and indeed are somewhat less dependant on the US market than some would have us believe.

There are, however, warning signs. Those most clear are the sheer expanse of Australia's credit boom; our heavy reliance on our resources propping up other sectors; and as many of you are experiencing, rising interest rates and inflation are certainly burdens that we are having to take on the chin.

As Henry Thornton adeptly explains, "Equity markets are said to be driven by waves of fear and greed. While fear produces crash and greed causes bubble, markets in more normal times are also the best economic prediction machines we have."

Just possibly, Australia's greater correction so far may be signalling that the Australian economy has more slowing to do from this point than the US economy. Compared to the USA, growth has to slow in most places, even in China and India.

This does not mean either the US or Australian economy, or the Chinese economy need suffer a recession. Growth has to slow in all three countries, and in many others, because recent growth is unsustainable.

The message of the markets is that this slowing is underway. If we are lucky, adjustment will be mild and will be achieved with minimal damage in terms of lost jobs, bankrupt businesses and social and political unrest.

Despite the financial market trembles, the Reserve Bank should help Australia achieve a soft landing with at least one more rate hike next month. The Rudd government needs to tighten spending substantially - having "found" a surprise saving of $3billion from "underspending" in health care, education and infrastructure from the Howard Government, Rudd has been helped in it's quest for finding savings of $10billion.

The much discussed drop in consumer confidence should be welcomed as a sign that Australian households are rational, and some spending restraint is highly rational now - better late than never.

Simon Turner simon@marquetteturner.com.au

The Global House Price Growth Decline: Except Australia!

House price growth across the world has slowed down slightly over the last year, and property values on a global scale rose by 8.2 per cent during the third quarter of 2007.

This is down from a 9.7 per cent increase recorded 12 months earlier.

However, Australia still managed to record a strong rate of growth during this period. During the year to September 2007, the nation's average property values rose from 9.5 per cent to 10.3 per cent.

Price growth has been driven by gains in Brisbane, Melbourne and Adelaide, where in each case, inflation over the year to quarter three of 2007 has been over 16 per cent.


Simon Turner simon@marquetteturner.com.au

Sydney's Losing...It's People!

Sydney is bleeding 22,000 citizens a year to all parts of Australia, and for the first time the people deficit covers all key groups, from students and young singles to families and retirees.

The nation's biggest city is the only capital to lose more people aged 15-34 than it gained from interstate migration between 2001 and last year, and is the only capital apart from Adelaide to go backwards for both professional and blue-collar workers.

But for every Sydneysider who is forced out by the cost of living, another two are replacing them from the overseas migration program.

New official data analysed by The Australian reveals a dramatic realignment in the nation's make-up as young and old alike criss-cross the continent from Perth to Melbourne and from Sydney to the "rest of" Queensland - everywhere outside the capital city.

Hobart is the surprise packet, rising to third place behind Brisbane and Perth as the most popular city destination for interstate migrants, while the rest of Tasmania has leapt to second behind the rest of Queensland on the regional growth ladder.

The rest of Victoria and the rest of NSW are also in the black - breaking the past pattern in which they gave up more people to Queensland than they received in seachange and treechange retirees from Melbourne and Sydney.

The bigger picture shows that the rest of Queensland has replaced the state's capital as the nation's top people magnet, gaining 14,000 people a year compared with Brisbane's 10,000 a year.

The customised tables were extracted from the 2006 census, and track interstate migration over the past five years by age and qualification.

Responding to The Australian's analysis, demographic experts said the cause of the drift away from Sydney could be explained in part by its high property prices but also by its slowing economy.

The director of Monash University's Centre for Population and Urban Research, Bob Birrell, said Sydney's population decline mirrored the decline of its economy relative to the rest of Australia.
"We're seeing a big change in Sydney's relative attraction since 2001 or, really, since the Olympics. Sydney's demographic fortunes have changed sharply," he said.

"It's a chicken-and-egg thing, but the actual fact is that job growth in Sydney has slowed relative to Brisbane and Melbourne since 2001."

Demographer Bernard Salt said Sydney had become a divided city, between those who lived the "globalised" lifestyle, close to the CBD, and those who lived in the outer suburbs and rarely saw the Sydney Harbour Bridge.

"We've got floods of people coming in through the front door, into Sydney through Mascot (airport from other countries), but the backdoor's wide open, and Gen Y and down-shifters are streaming out. You don't find that to the same extent in other capital cities," Mr Salt said.

The latest census shows 111,400 more people left Sydney than arrived from elsewhere in Australia between 2001 and last year. This is almost double the rate of defection between 1996 and 2001, when 59,700 people left Sydney in net terms. Every capital, state and territory is officially an importer of Sydneysiders, the data confirms. Four out five Sydney defectors moved to the rest of NSW (46,500), the rest of Queensland (27,800) or Brisbane (18,700).

But Sydney's loss is most acute in the youth belt, which is the group providing the best gauge of a city's health. Almost one in 10 departing Sydneysiders was aged 15-34 - 10,000 out of the total 111,400. Sydney had previously been a net importer of youth, with 14,000 recruits from the rest of the nation between 1996 and 2001. The reversal over the past five years suggests cost of living pressures are pushing out Sydney's young and discouraging others from settling in their place.

The top beneficiaries of Sydney's youth drain were the rest of Queensland (5900), Brisbane (4600) and Melbourne (1800).

Sydney has struggled to meet the infrastructure needs of its population, but growing cities such as Brisbane could face the same pressures.

The other telling deficit for Sydney involves its local workforce. Sydney lost 7200 professionals and 5100 labourers between 2001 and last year.

Sydney also suffered professional worker deficits with Melbourne and Canberra (600 each).
Traditionally, Sydney and Melbourne received more professionals from Brisbane than went the other way. But the tables flipped in the past five years, although Melbourne lost 400 professionals to Brisbane, compared with 1700 who moved north from Sydney.


Simon Turner simon@marquetteturner.com.au