Trendline
Your weekly update of the latest economic trends
17 April 2015
WA’s credit rating on negative watch
The WA State Government’s AA+ credit rating was placed on negative
watch by Standard & Poor’s (S&P’s) on Tuesday, reflecting the
Government’s weakening budgetary performance and a likely further
reduction in mining royalties due to declines in iron ore prices.
S&P’s stated that it does not believe that the Government’s Mid Year
Review savings targets of $1.8 billion is achievable, given the State’s
past performance in meeting such targets. This is mainly due to
the “lack of political will” to make difficult decisions. S&P’s forecast
that the State’s net debt level will rise to 114 per cent of operating
revenue by 2018, which is more than double its current levels of
around 55 per cent.
S&P’s has essentially given the State Government 90 days to alleviate
the risks to WA’s credit rating suggesting that otherwise another
downgrade is imminent. To maintain its current rating, S&P’s believes
that WA must raise additional revenues and cut spending to achieve
operating surpluses and after-capital account deficits of around
five per cent.
Following the announcement, WA Treasurer Mike Nahan ruled out
raising taxes or taking on further substantial spending cuts, beyond
those planned for the State Budget to be handed down on 14 May.
The “negative watch” was instigated after S&P’s lowered its iron ore
price assumptions to an average of $US45 per tonne for the rest of
2015 and $US50 per tonne in 2016.
S&P’s also placed the three large WA iron ore miners, BHP Billiton,
Rio Tinto and Fortescue Metals Group (FMG) on negative watch earlier
that day. Profit margins for the junior iron ore miners are also under
pressure with higher costs of production. Late last week, Atlas Iron has
announced that it is stopping all mining and crushing operations by
the end of April with exports ceasing shortly after the suspension.
FMG also announced this week that they would be maintaining
current production levels rather than expand to 200 million tonnes.
However, production results for the March quarter show that the
company is expecting it will increase exports by as much as 10 million
tonnes in this financial year. This increases full-year shipping guidance
for FMG to between 160 and 165 million tonnes.
We will be providing detailed analysis on key commodity markets for
WA, specifically iron ore and oil, in the next Outlook publication due
for release in May.
Chinese economy shows further signs of slowing
March trade figure of the world’s second largest economy were
released Monday morning, and were significantly weaker than market
expectations. Chinese exports declined 15 per cent year-on-year
(market estimates was growth of 12 per cent) Chinese imports also
declined 13 per cent year-on-year and resulted in a trade balance of
$US3 billion, far less than the markets estimate of $US45 billion and
February’s $US61 billion surpluses.
Following the release of trade figures the market was anticipating
Chinese GDP figures (released on Wednesday) for the first quarter
of 2015 to be worse than previously thought. However, GDP figures
came in at the prior consensus of seven per cent year-on-year growth.
This was down 0.3 percentage points from growth figures reported in
the final quarter of 2014.
The Chinese economy has continued to slow (this time five years ago
saw output growth of ten per cent) and this quarter’s results were
reflective of weaker global demand for Chinese exports. High levels
of growth in the Chinese economy has been a result of a large amount
of government investment into infrastructure.
The much anticipated transition away from government lead
infrastructure growth towards private sector lead infrastructure and
consumer driven growth appears to be further away than previously
thought. There is little the Chinese can do to influence the global
demand of their goods, however, China has room to reduce interest
rates with the intentions of boosting domestic demand.
This week also saw the International Monetary Fund (IMF) release their
April report on the world’s economic outlook. Global growth for 2015
was unchanged from the IMF’s January edition at 3.5 per cent. China’s
growth for 2015 was also unchanged at 6.8 per cent, although the IMF
has forecast China’s growth to slow to 6.3 per cent by 2016. The IMF
revised up India’s growth forecast to 7.5 per cent in 2015 which will
see the nation pass China as the world’s fastest growing economy of
the large economies.
Amidst declining commodity prices, the IMF downgraded Australia’s
growth from 2.9 per cent to 2.8 per cent. The IMF does not expect the
prices of key Australian commodities to stabilise until 2017.
China GDP
China GDP
Annual Percentage Change
Annual Percentage Change
16%
16%
14%
14%
12%
12%
10%
10%
8%
6%
Mar 95
Source: Bloomberg
8%
Mar 99
Mar 03
Mar 07
Mar 11
6%
Mar 15
Data wrap-up
14/04/15
15/04/15
16/04/15
16/04/15
Results of NAB’s monthly Business Confidence Survey were released on
Tuesday and showed that both business conditions and business confidence
reported modest increases in March. Business confidence reported a three
point lift to now sit in positive territory at +3. The jump in confidence was
largely attributed to a sharp 29 point increase in confidence reported in the
mining sector. The index of business conditions improved by four points to
reach +6, and is now above the long term trend of +4. Improved activity in
the wholesale industry and construction industry contributed most to the
jump in conditions, increasing by 17 points and 13 points, respectively.
In Western Australia, positive figures were reported in March as business
confidence increased by 14 points to reach -1 and business conditions
increased by seven points to reach +4. Notwithstanding, perceived business
conditions and confidence is still lower in Western Australia than most other
Australian States and Territories.
The Westpac Melbourne Institute Index of consumer sentiment fell
3.2 per cent from March and now stands at 96.2 points in April. Westpac
reported declines in sentiment this month are in line with historical months
leading up to the Federal Budget, furthermore, the months following the
Budget are also expected to show declines in sentiment. Notwithstanding,
Westpac reported the major driver behind this months figure was a
24 cent jump in petrol prices from February, when a lower price was a driver
behind a boost in sentiment. The RBA’s failure to deliver on the markets
expectation (75 per cent chance) of a rate cut also weighed on the index.
Lately, Westpac reported the ramp-up in media coverage of declining iron
ore prices would have “undermined households’ confidence”.
Labour force data released by the ABS yesterday showed that the Western
Australian unemployment rate decreased by 0.2 percentage points in
March to now sit at 5.5 per cent. The positive March result was largely
a reflection of the addition of 7,300 jobs in the Western Australian
economy on the month, with the participation rate remaining steady at
69.1 per cent. However, the majority of these new jobs were part-time
(5,800), with only 1,500 being full-time. For Australia as whole, the
unemployment rate decreased by 0.1 percentage points to reach
6.1 per cent as 37,700 jobs were created in the national economy in
March. With this release, Western Australia’s unemployment rate is
still lower than the national average and the lowest of all Australian
jurisdictions; the labour market continues to defy calls that the economy is
faltering as it transitions from resources investment towards production.
National new motor vehicle sales grew 4.4 per cent in March, totalling
96,158 sales and was largely driven by a eight per cent increase in the
number of sports utility vehicles sold. Western Australian figures were
down 6.7 per cent in March and stood at 9,183 sales, driven by a
ten per cent and 7.7 per cent decline in the number of passenger vehicles
and other vehicles (respectively) sold during the month. Western Australia
experienced the largest decline in sales this month (compared to the rest
of the nation), with South Australia the only other state reporting declines
(2.6 per cent). Queensland reported the largest increase in sales this
month (10.2 per cent), followed by Tasmania (7.9 per cent).
NAB Monthly Business Survey
National. Confidence & Conditions,
Index; 0 = “Neutral”
NAB Monthly Business Survey
National. Confidence & Conditions, Index; 0 = "Neutral"
20
Confidence
Conditions
20
15
15
10
10
5
5
0
0
-5
-5
-10
Mar 10
Source: Bloomberg
Mar 11
Mar 12
Mar 13
Mar 14
-10
Mar 15
Westpac-Melbourne Institute
Consumer Confidence
National.Institute
Confidence,
Index;
Westpac-Melbourne
Consumer Confidence
National. Confidence, Index; 100 = "Neutral"
100 = “Neutral”
130
130
120
120
110
110
100
100
90
90
80
Apr 10
Apr 11
Apr 12
Source: Westpac-Melbourne Institute
Apr 13
Apr 14
80
Apr 15
Unemployment Rate
WA & Australia, % of Labour Force
Unemployment Rate
WA & Australia, % of Labour Force
7%
7%
WA
Australia
6%
6%
5%
5%
4%
4%
3%
3%
2%
Mar 05
Mar 07
Mar 09
Mar 11
2%
Mar 15
Mar 13
Source: ABS Cat. 6202.0
New Car Sales
WA & Australia, 000s
New Car Sales
WA & Australia, 000s
12k
WA (LHS)
120k
Australia (RHS)
11k
110k
10k
100k
9k
90k
8k
80k
7k
Mar 10
Mar 11
Source: ABS Cat. 9314.0
Mar 12
Mar 13
Mar 14
70k
Mar 15
The week ahead
20/04/15
The release of New Zealand CPI figures and the German Producer Price Index kicks off a quiet week for international and
domestic economic releases.
21/04/15
On Tuesday the RBA will release the minutes of their April meeting where they elected to keep interest rates on hold. The
ABS will also release Australian international merchandise import figures on Tuesday.
22/04/15
The ABS releases Australian CPI data on Wednesday, which is expected to remain weak on the back of the recent declines
in commodity prices. Japanese international trade data is also released by the Ministry of Finance and euro zone
consumer confidence figures are released by the European Commission.
23/04/15
Internationally, the UK National Statistics office will release public sector net borrowing data on Thursday and Markit
Economics will release Chinese HSBS Manufacturing PMI figures; while domestically, detailed labour force statistics
for all Australian States and Territories is slated for release.
Produced by CCI Economics The Chamber of Commerce and Industry of Western Australia (Inc)
180 Hay Street, East Perth WA 6004 Telephone (08) 9365 7555 Facsimile (08) 9365 7550 Email: [email protected]