Australian Private Sector Activity remained in contraction for the fifth straight month and manufacturing flat-lined according to the latest Judo Bank PMI data.
The Judo Bank Manufacturing PMI managed to edge up from contraction to just 50.1. This was largely due to some rebound in exports. Partially driven by China’s re-opening. Nevertheless, there appears little to no momentum in the sector at the current moment.
Overall Private Sector PMI moved up to 49.5, but confirmed a full five months now in contraction territory.
Unemployment rises
As expected, unemployment in Australia moved higher last week. I say as expected as I always sought to highlight that unemployment only appeared low due to the Covid-driven low immigration and travelling/student worker levels. As these aspects of travel return to normal, the true state of unemployment will continue to be higher.
The distortions in the Australian economy remain extreme and point only to recession. We were previously forecasting a ‘surprise recession’. This was because at the time no one else foresaw such a scenario. Now the view has become more common place, we can simply refer to it as the coming recession.
Whether we see the consecutive quarters of negative growth to generate a technical recession is beside the point that a severe slowing is now underway. And has been for some time.
Effect of previous government’s stimulus measures
Much of this is to do with previous government stimulus measures and the keeping of interest rates near zero for far too long and the ridiculous quantitative easing seen in this country.
Conducted by the RBA, QE was implemented to copy what the US Federal Reserve was doing? There was no real justification regarding the Australian economy situation.
The current criticisms of the RBA are missing the biggest point of all. They focus largely on the recent hiking cycle. They miss the long history of ineptitude.
This is a catastrophe for the Australian economy and property markets.
Yet, to criticise the RBA for these current hikes is really for many to simply talk their own books. It is entirely false to believe only declining rates are good monetary policy, and raising rates is bad policy.
Rates should be hiked when inflation is overheating in a demand driven economic period. This is not however a demand driven cycle that we are now in. Employment was never as strong as it appeared post-covid and the private sector is in contraction for the fifth straight month.
Raising rates in the current situation only adds pressure to an already stumbling economy. With limited impact on inflation which has already been allowed to run free. The RBA left the gate open and didn’t even begin the chase until inflation was out of sight.
Shooting into the air now will do little to help, though raise rates it must in any case to get back to at least neutral. Knowing the RBA for who they are, they will probably raise rates another four times. If allowed to remain in their armchairs.
The RBA was the only central bank in the world to raise rates during the GFC. It did so three times. Then panic slashed to make up for sending NSW and Victoria into recession at the time.
The Australian economy is largely struggling because it was over-stimulated during Covid and interest rates were kept low for a ridiculous amount of time. This sucked forward future economic activity into that period. Hence the boom. Where we are now is that artificially created desert?
Australia deserves world-class financial markets. This necessitates a far healthier and more objective debate regarding the RBA than has occurred in the past.
Federal government policies must recognise that we are now in a prolonged period of subdued economic activity. An essential part of the remedy requires immediate invasive surgery of the RBA, due to the poisonous mixture of self-importance and Peter Principle.
It is the Australian people, families, and the economy that are suffering from this roller-coaster economy that did not have to happen.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
