The Experts

Noughties in perspective

In terms of economic conditions, the noughties was arguably Australia’s best decade in the modern era. Unemployment remained low across the period, there were consistent real wage gains, wealth levels soared, and outcomes for both inflation and interest rates were far better than in the 1970s or 1980s, although less stellar than the 1960s.

Some may suggest that the 1960s was a better decade for the Australian economy. But a key point of difference is that Australia went through the entire noughties decade without experiencing a recession. In the 1960s, Australia experienced a recession in 1960/61 with the economy contracting for four consecutive quarters.

Many may not view the noughties in a favourable light given that the global financial crisis is still uppermost in people’s minds. But each decade had something – whether it was a financial crisis, sharemarket crash, major recession, war or geopolitical shock. The noughties also had its challenges, but importantly the Australian economy weathered each test.

Noughties over; teens to begin

So the noughties decade is drawing to a close. The key question is what will the coming decade be called. The ‘tens’? The ‘twenty-tens’? Or perhaps the ‘teens’? All have been suggested but none roll off the tongue. We’ll run with the ‘teens’.

The noughties will probably be best known as the ‘technology’ decade – it was the decade that mobile phones, MP3 players, game machines and big-screen TVs were fully embraced, advancing globalisation to a new level. So what are the ‘teens’ likely to be known for? No doubt technology will continue to advance at break-neck speed, but the teens are likely to be a decade dominated by China, India, and environmental/climate issues.

China has only really emerged in local and global consciousness in the past few years, but the industrialisation of a land with 1.3 billion people will clearly dominate the next ten years. India, with its 1.1 billion people, is probably 7-10 years behind China in economic terms so it will become more dominant in everyday thinking and influence later in the teens.

The teens will also be the decade when the bulk of baby boomers move into retirement. For investment markets, especially the sharemarket, this may lead to more conservative strategies, affecting the flow of funds. But it also means that an even greater share of economy-wide spending will be allocated to travel, leisure and personal services. The impact on housing is less clear. Will baby boomers stay put, downshift to smaller properties, move to the country or buy city pads and holiday homes? And for the job market the shift towards more flexible practices will continue with a further blurring between work & leisure and work-days and week-ends.

The week ahead

The week between Christmas and New Year is traditionally quiet on financial markets, but this year it looks to be especially dull. The only domestic economic data of note is not released until New Year’s Eve and takes the form of data on private sector credit (lending) and house prices, the latter courtesy of RP Data and Rismark. Note however that the release date for house prices is not set in stone – it depends on the flow of sales data coming from Valuer-General’s offices.

At face value it doesn't appear that bank lending books are expanding, but that perception is deceiving due to reductions in foreign currency loans and margin lending. Bank assets lifted 0.3 per cent in October with bank housing loans up a solid 1.1 per cent. Overall we think that personal credit grew by 0.1 per cent in November to stand 0.9 per cent higher than a year ago.

While the credit figures may be of interest to economists, for the rest of the population it is the latest data on house prices that will attract attention. Australian dwelling prices soared by 1.4 per cent in October to stand 8.7 per cent higher than a year ago. Another result like that and the Reserve Bank policymakers would re-think any early plans they have of moving to the interest rate sidelines.

In the US, data on house prices will also dominate attention with the Case Shiller index released on Tuesday. House prices are also rising in the US, but far more modestly. And prices are still more than 9 per cent lower than a year ago.

Also on the agenda in the coming week is consumer confidence (Tuesday), Chicago purchasing managers index (Wednesday) and weekly jobless claims (Thursday). The US dollar has been gaining ground of late on perceptions that the US economic recovery is gaining momentum. But that theory will be put to the test with the readings on consumer confidence and claims for unemployment insurance (jobless claims).

Published: Tuesday, December 29, 2009