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All eyes on mid-year Budget review

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by Craig James

The Federal Government will release its mid-year estimates of the Budget position on Tuesday. In 2012/13, the budget was in deficit by $18.8 billion or 1.2 per cent of GDP. Not only was the deficit relatively small as a proportion of GDP, the result was actually an improvement on the $19.4 billion deficit assumed at the May 2013 Federal Budget.

But even more important, the budget deficit has actually narrowed for the past three years. In 2009/10 the deficit stood at $54.5 billion or 4.2 per cent of GDP. The deficit eased to $47.5 billion and $43.4 billion before ending up at $18.8 billion.

The Pre-Election Fiscal Outlook (PEFO) document estimates that the improvement in the budget position came to an end in 2012/13 with a deficit of $30.1 billion forecast in 2013/14 or 1.9 per cent of GDP.

While still low as a proportion of GDP and compared with budget positions in other western nations, it is likely that the Federal Government will commit to stemming the blow out with the hope of getting the accounts back into surplus before the current estimate of 2016/17.

The week ahead

Most of the ‘top shelf’ Australian economic indicators for 2013 have been released. But that doesn’t mean that investors can rest easy. The mid-year Budget review is issued in the coming week while the Reserve Bank Governor is grilled by parliamentarians. In the US, the Federal Reserve meeting dominates attention.

In Australia, the week kicks off on Tuesday – and given the number of indicators and events to be released on that day it could be termed “terrific Tuesday” or even “Titanic Tuesday”.

Probably the highlight is the mid-year Budget review, released as the Mid-Year Economic & Fiscal Outlook report or MYEFO. Not only will the Government present the updated position on the budget but the report will contain Federal Treasury’s latest economic assumptions.

Also on Tuesday the Reserve Bank will release minutes of the last board meeting. Usually there are few surprises, but analysts will have to dissect the report to make sure.

Also on Tuesday the Bureau of Statistics issues the latest Demographic Statistics or population data. Australia possesses one of the fastest population growth rates in the western world at 1.76 per cent. The ABS also issues November data on both imports and car sales – timely economic readings.

And to cap it all off, the Reserve Bank Assistant Governor, Guy Debelle, delivers a speech on Tuesday.

On Wednesday the Reserve Bank Governor is scheduled to appear before the House of Representatives Economics Committee. There are only a few ‘hot button’ issues at present – the Governor’s views on home prices and the Australian dollar and the implications of the current budget position for interest rates.

And on Thursday the ABS issues a number of economic indicators: the quarterly financial accounts and detailed employment data. The former includes a raft of statistics such as overseas holdings of shares and bonds and the cash and share holdings of households and superannuation funds. The latter data release on Thursday will include the latest estimates of employment by industry.

In the US, the week kicks off on Monday with the release of the closely-watched Empire State manufacturing survey. On the same day, industrial production, capital flows and revised productivity and labour costs data are expected. Analysts expect that production lifted by 0.4 per cent in November after easing modestly by 0.1 per cent in October. A strong reading could sway the balance of opinion at the Federal Reserve policymaking meeting.

That Federal Reserve Open Market Committee (FOMC) meeting gets underway on Tuesday and continues over Wednesday. The voting members must decide whether the economy is in strong enough shape to start winding back (or tapering) the Fed’s bond-buying program. On the one hand, inflation is under control and US politicians haven’t signed off on an increase in the debt ceiling. On the other hand, economic growth has picked up with unemployment down 30 per cent on the highs reached in the global financial crisis.

Also on Tuesday, the consumer price index for November is also issued – again timely given the proximity of the Federal Reserve meeting. Economists expect that underlying inflation is under control with the core rate (excludes food and energy) tipped to have risen just 0.1 per cent in November.

Also on Tuesday the usual weekly data on chain store sales is issued together with the NAHB housing market index and quarterly current account statistics (broader trade data).

On Wednesday, the Federal Reserve hands down its decision (Thursday 6am AEDT). Also data on housing starts for September, October and November are released together with weekly data on housing finance.

On Thursday, the influential Philadelphia Federal Reserve survey is issued together with the usual weekly data on claims for unemployment insurance, the leading index and existing home sales figures.

Economists expect that existing home sales may have eased from a 5.12 million annual rate to 5.10 million in November. And the leading index may have posted a solid 0.6 per cent increase in November.

And on Friday, the final September quarter estimates of economic growth will be issued. There is likely to be little change to the current 3.6 per cent annualised growth rate – a growth rate above that of Australia.

Sharemarket, interest rates, currencies & commodities

There are still a couple of weeks before the end of the year and it appears likely that the number of new listings on the sharemarket (initial public offerings (IPOs) or floats) will exceed those of 2012. So far (to December 10) 49 new IPOs have been recorded and another 18 are expected over the remainder of December (or in the near future).

Over 2012 there were 51 IPOs, but listings over both 2013 and 2012 have been well short of the 107 IPOs that occurred in 2011.

So far the best performer this year has been Indoor Skydive Australia, its current price up 185 per cent on the IPO price. At the other end of the scale, the share price of Zeus Resources has fallen 92 per cent from the issue price.
 
Upcoming economic and financial market events

Australia

  • December 17 - Mid-Year Economic & Fiscal Outlook - The mid-year budget update
  • December 17 - Population (June quarter) - Australia’s population growth is one of the world’s fastest
  • December 17 - New car sales (November) - Vehicle sales are being supported by demand for SUVs
  • December 17 - Reserve Bank Board minutes - Minutes of December 3 meeting
  • December 17 - Speech by Reserve Bank official - Speech by Guy Debelle, Assistant Governor
  • December 18 - Reserve Bank Governor testimony - Testimony before Parliamentary Committee
  • December 19 - Reserve Bank Bulletin - Topical economic articles
  • December 19 - Financial accounts (September quarter) - Includes household financial balance sheet
  • December 19 - Detailed employment (November) - Includes employment by industry

 
Overseas

  • December 16 - US Empire State survey (December) - One of the timeliest economic surveys
  • December 16 - US Industrial production (November) - Economists tip a 0.4% gain
  • December 17/18 - US Federal Reserve meeting - Will the Fed start tapering?
  • December 17 - US Consumer prices (November) - Core prices may have edged up just 0.1%
  • December 18 - US Housing starts (November) - Revised September & October data also released
  • December 19 - US Philadelphia Fed (December) - Influential regional survey
  • December 19 - US Existing home sales (November) - Expected to ease from 5.12 million to 5.10 million
  • December 20 - US Economic growth (September quarter) - Current growth estimate is 3.6%

Published: Monday, December 16, 2013

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