Australia’s Economy Shrinks Most in Eight Years; Currency Slumps

by
Michael Heath


December 6, 2016 — 7:40 PM EST Updated on December 6, 2016 — 11:55 PM EST

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Economy suffers only fourth quarterly slump in past 25 years

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Most observers see growth rebound from rising resource exports

While Australia’s economy shrunk last quarter, it’s probably more of a red flag than a precursor to recession.

One of only four quarterly contractions in the past 25 years, the so-called ‘lucky country’ is unlikely to suffer a second consecutive slump -- just as in those prior periods. But it’s a wake-up call for lawmakers that recent political timidity and gridlock is unsustainable, as is reliance on monetary policy to support growth with a 1.5 percent interest rate that may not even fall further.

A growing chorus of high-profile economists and international institutions are calling on Australia to follow U.K. and U.S. plans to use infrastructure stimulus, particularly with global borrowing costs so low. But the government has made clear its priority is returning the budget to balance as it seeks to protect a prized AAA credit rating.


Wednesday’s report showed:
•Gross domestic product fell 0.5% from previous quarter, when it gained a revised 0.6%
•Decline was driven by slump in construction and government spending
•Result was worst since depths of global financial crisis at the end of 2008 and well below economists’ estimates of a 0.1% drop
•The economy grew 1.8% from a year earlier, compared with a forecast 2.2% gain
•Australian dollar fell almost half a U.S. cent on the data



Annette Beacher, head of Asia-Pacific research at TD Securities Ltd. in Singapore, summed up the general consensus among economists to the contraction.

“We’re still confident that this is just a perfect storm of negatives and we shouldn’t be talking about technical recessions -- we should be talking about what rebound we can expect for the fourth quarter,” she said. “It just seemed like an unexpected confluence of negatives that all happened to be concentrated in one quarter.”

But while growth will probably resume given resource export volumes have further to rise, this requires little labor. Meanwhile, a residential building boom that’s employed many ex-miners is forecast by some economists to peak next year, removing a driver of growth and employment. Balancing that is an unwinding of mining investment, which is forecast to soon stop acting as a drag on growth.




What the economy urgently needs is business investment outside mining, which has failed to emerge despite the best efforts of the Reserve Bank of Australia to talk up the economy and via rate cuts. While the government is betting a proposed cut in corporate tax will encourage firms to spend and hire, opposition parties are blocking the passage of the legislation. Outside of this, there’s little on Prime Minister Malcolm Turnbull’s agenda.

One region where business investment has been strong is New South Wales, running at 10 percent per annum for the past three years. Coincidentally, that’s the only Australian state undertaking meaningful infrastructure investment.

“Effective public investments can boost GDP over the long term by creating demand, boosting business confidence, lifting growth and ultimately reducing, not increasing, the debt-to-GDP ratio over time,” said Andrew Charlton, director of consultancy AlphaBeta in Sydney. “Australia needs a short term plan to increase spending on infrastructure and other productive public assets, especially while interest rates are so low, and a medium term plan to reign in recurrent spending over time.”

His views echo those put forward by the International Monetary Fund and the Organization for Economic Cooperation and Development.

Other Details

Wednesday’s GDP report showed that government spending and resource exports failed to lift growth as they did in the previous two quarters. The slowdown from an annual 3.1 percent rate in the second quarter was dramatic, particularly when the Treasury estimates the economy’s potential at 2.75 percent and central bank forecasts match or exceed that level.
The data also showed:
•Private investment in new buildings cut 0.3 percentage point from GDP
•New engineering and new and used dwellings shaved 0.2 and 0.1 percentage points respectively
•The household savings ratio fell to 6.3% from a revised 6.7%, which helped support household spending
•The terms of trade, a gauge of export prices relative to import prices, jumped 4.5%
•Household spending rose 0.4% and added 0.3 point

NAB divyy is pretty good at 6.28%

Care to share them here?

Here......enjoy!

http://dividends.com.au/

http://www.fool.com.au/2017/01/12/is-natio...-dividend-safe/

National Australia Bank Ltd. (ASX: NAB) and Macquarie Group Ltd (ASX: MQG) offer big dividends to shareholders and have quality franchises.


Source: Google Finance
Source: Google Finance



Should you buy NAB and Macquarie shares in 2017?

As can be seen in the chart above, both the NAB and Macquarie share prices have rallied strongly in the past six months.

Given their strong performances it is important to remind ourselves to not become overexposed to the sector. Indeed, if you already own shares of NAB or Macquarie, or maybe some other financial company, for risk purposes, you may want to reconsider buying more.

For example, if 25% or more of your portfolio is exposed to the financial industry it may be time to consider diversifying into other sectors.

Now that the warning is done, here are three reasons to consider owning NAB and Macquarie Group shares:
1.Big dividends – In the year ahead, NAB and Macquarie shares are forecast to yield dividends equal to 6.2% fully franked and 4.7% partially franked, respectively.
2.Relative safety – Australia’s largest banks are highly regulated and dominant in their respective industries. Both of these factors lend themselves to better defensive qualities than ordinary ASX shares over the long term, in my opinion.
3.Modest long-term growth – Both banks are well funded and boast leading market shares of key products. NAB is a leader in business banking while Macquarie is Australia’s premier investment bank. I think that puts both banks in good stead for modest growth over time.

Foolish Takeaway

Macquarie and NAB are two leading Australian banks. NAB has refined its operations and can now focus on its core assets in Australia and New Zealand, while Macquarie continues to post impressive growth locally and abroad. However, it is also important to pay a good price.

Therefore, being patient and waiting for a lower entry level may be prudent. If either bank falls back from today’s share price levels I will consider buying in.



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We learn together!

From the Fool....

Countplus Ltd (ASX: CUP) is an aggregator of accounting practices. The company acquires small accounting firms which tuck-in to the Countplus member firm network, providing small businesses access to scale. Countplus listed on the ASX in 2010 at $1.40 and currently trades at all-time lows, making it one stock that is worth a deeper look.

Business model

Countplus acquires small accounting firms through a cash and/or equity payment. Interestingly, Countplus does not employ its own staff. Instead, Countplus keeps the Principals (owners) and staff of acquired firms employed and takes an annual royalty/franchise payment.

Management recently introduced a new direct equity plan which allows Vendor Principals to buy-back up to 40% of the member firm from Countplus. The scheme allows Principals to re-purchase equity from Countplus, leading to better stakeholder alignment.

This business model incentivises performance as Principals remain in charge of the business; since most member firms are small, owner-owned practices, Principals are usually the founders of the business and have a vested interest in doing well. This makes Countplus’ business model an attractive proposition, given the majority of its shareholders are strongly aligned to the group’s performance.

Earnings road bump

As announced in April this year, Commonwealth Bank of Australia (ASX: CBA) owned 36% of Countplus due to Commonwealth Bank’s acquisition of Count Financial Limited in 2011. Speculation is mounting that this stake will be slowly divested in the coming years. This may place downward pressure on its share price, however, I believe most of that is already priced in, meaning the real driver to share price should be its earnings.

In its latest full year results, Countplus reported an increase in underlying profit of 15.9%. However, in absolute terms, earnings fell 15.1% due to the cessation of loyalty payments from Commonwealth Bank (which were part of the terms of the Count acquisition).

Performance expectations have tempered as a result, with the company providing an update to its outlook at its Annual General Meeting on 25 November 2015.

Stable income stream

The accounting industry is expected to grow by an annualised 3.7% according to IBISworld. Despite the lack of guidance provided by management, I believe Countplus should manage to grow earnings in the current climate.

If earnings per share remain flat at 9 cents per share, Countplus should be able to maintain its annual 8 cents fully-franked dividend. This places it on a forward yield of 11.9% (inclusive of franking credits), providing a solid income stream to the patient investor.

Foolish takeaway

In the interim, Countplus’ current operations should continue performing to plan, with supportive industry dynamics providing favourable tailwinds for the business. Although management has indicated debt levels will rise as a result of further acquisitions, the long-term outlook remains positive. Accordingly, Countplus’ current dividend yield on offer makes it worth a look at today’s prices.

http://www.countplus.com.au/Shareholder-Centre/Reports

The daily volumes for CUP is miniscule!

2k,7k, 12k,

too low to buy anything.

Yeah

i am trying to buy for my retirement as well. But they are not biting!

i almost had my order filled yesterday at 0.82!
But its vry difficult with such low volumes

Bought into CUP at 81.5

No..not yet.

Looking at NAB below $30 .

What is BOQ?

Too busy studying the US stocks as well

This post has been edited by prophetjul: Jan 31 2017, 12:26 PM

WSOEW! That's very steep tax!

Therefore, it may not be a good investment frontier for foreigners, unlike US mkts where we are not taxed.

Not so easy to get 11% yields, especially for banks.
However, there are many stocks in US dishing out more than 10% yields.
In the end, it's probably down to geographical asset allocation strategy.

Bro...it's indeed a blessing to have such experts here to guide us.
Presumably with the tax application by Aus, Msia does not have a tax treaty with Aus?

Ram

So far, I have not experience any withholding tax from US authorities investing in stocks.
Have you signed the W BEN8 forms ?

If you have send in the W BEN8 forms to declare that you are not a US citizen, etc, you should not be subjected to US taxes due to the tax treaty with Malaysia.


https://www.irs.gov/individuals/internation...rs/tax-treaties


https://www.irs.gov/individuals/internation...x-treaty-tables


http://www.knowthymoney.com/2011/07/how-to...-malaysian.html


My MIS....Malaysia does NOT have a tax treaty with US, therefore the W BEN8 declaration form.

This post has been edited by prophetjul: Feb 7 2017, 11:24 AM