Sunday Herald Sun - - Fi­nance -

BE alert but not yet alarmed. And be pre­pared to spend all of 2019 con­tin­u­ally with that frame of mind. That’s at best. It — and that word cov­ers the full spec­trum of your fi­nan­cial and eco­nomic well­be­ing: your job, wage and salary in­creases, your su­per, the value of your prop­erty, your busi­ness con­di­tions, if you own or run one, etc etc — is not go­ing to get dra­mat­i­cally bet­ter soon. And “it” could get worse. Or­ange lights started flash­ing dur­ing the week. Some of them were more or­ange-red. The first, the prop­erty mar­ket, has been flash­ing for some time.

As a gen­eral ob­ser­va­tion prop­erty prices have fallen per­haps about 10 per cent on av­er­age from their peak — a very high peak — in Mel­bourne and Syd­ney.

It’s more mixed and more com­pli­cated in the other cap­i­tals.

Fur­ther falls in 2019 are likely and this will ag­gra­vate an al­ready dy­namic neg­a­tive feed­back loop.

Prop­erty prices fall, that af­fects the econ­omy on sev­eral fronts, the weaker econ­omy then hits prop­erty prices.

How bad will the falls get? That de­pends on two things in par­tic­u­lar — jobs and wages.

Right now, con­tin­ued strong jobs growth is the bright­est el­e­ment in the econ­omy. As long as it con­tin­ues, you won’t get a real 1990-style melt­down in prop­erty.

But jobs are the ul­ti­mate lag­ging in­di­ca­tor. Jobs tend to dry up af­ter the econ­omy hits the wall; and the op­po­site tends to be the case on the up­side.

Stronger wages growth could get us out of some of the prop­erty and debt-ser­vic­ing dif­fi­cul­ties. But we are not go­ing to get that in 2019 — and even if we did it would prob­a­bly trig­ger job losses.

Then add the emerg­ing credit squeeze iden­ti­fied by the Re­serve Bank in its de­ci­sion to leave its of­fi­cial in­ter­est rate un­changed — per­haps, iden­ti­fied too sub­tly.

As I’ve been writ­ing, we should be­ware of get­ting what we wish for. What we wished for out of the bank­ing royal com­mis­sion was banks not rip­ping off cus­tomers. What we have got im­me­di­ately is four big banks pet­ri­fied at lend­ing to cus­tomers — prop­erty in­vestors and, most im­por­tantly, small and medium busi­ness.

SMEs em­ploy 75 per cent of peo­ple who work in the pri­vate sec­tor. It’s tougher than it’s ever been to run a busi­ness.

If they can’t get credit, that does not bode well for jobs and wages.

That brings us to the big­gest “alert but not yet alarmed” mes­sage — the GDP fig­ures that showed the econ­omy grew at just 0.3 per cent in the Septem­ber quar­ter.

That’s an an­nu­alised rate of just 1.2 per cent. Putting it to­gether with the much stronger June quar­ter gets you up to an econ­omy grow­ing at a 2.4 per cent rate. Over the year to the Septem­ber quar­ter the to­tal growth was 2.8 per cent.

All those num­bers are lower — the main one, much lower — than the 3.5 per cent growth the RBA was fore­cast­ing just a month ago for the full 2018 year.

I al­ways cau­tion against read­ing too much into a sin­gle quar­ter GDP num­ber. They are dodgy as. Ex­cept in this case, the broader con­text is not en­cour­ag­ing.

Clearly, the De­cem­ber quar­ter num­bers are go­ing to be ab­so­lutely crit­i­cal — less about telling us what is hap­pen­ing right now, but what’s build­ing for 2019.

Those fig­ures don’t come out un­til early March. But the RBA — and in­deed Trea­sury — is go­ing to spend Jan­uary very care­fully analysing as best it can what is ac­tu­ally hap­pen­ing, real time, in the econ­omy; and so there­fore what it pro­jects for 2019.

It will bring all this to­gether in its fore­casts, which are pub­lished early in Fe­bru­ary.

It will also tell us what this means for in­ter­est rates — and so, what it pro­poses to do about my “it”.

Then add what’s hap­pen­ing on the share mar­ket. Wall St took an­other hit overnight on Fri­day. It’s now dropped a thump­ing 1400-plus points in just three days.

The — slightly — good news is that in the pre­vi­ous week it had surged, so af­ter the fall it was still ac­tu­ally — just — higher than it had been two weeks ago.

Why does Wall St mat­ter so much to us?

First, be­cause it drives all mar­kets — no­body goes to bed at night won­der­ing what’s go­ing to hap­pen on the Ger­man mar­ket (nor for that mat­ter, what Chan­cel­lor Merkel might do po­lit­i­cally).

But Wall St also both re­flects what is hap­pen­ing with US in­ter­est rates and of­ten af­fects those rates; and all that will drive global rates, global mar­kets and the global econ­omy.

Wall St is also re­act­ing to what is or is not hap­pen­ing with the US-China trade war.

In all this it’s hard to find any good news.

But to re­peat, it does not add up to im­pend­ing and un­avoid­able doom.

Not yet. It bears very close watch­ing.

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