It’s amazing how quickly sentiment towards Australia’s economy has changed across Asia. Having been seemingly relentless Australia bulls, investors are quickly morphing to bears, concerned about the state of the economy, politics and tellingly, the inability to get the budget back on a sounder footing.
That’s the bearish and somewhat worrying outsiders view to come from ANZ’s recent whistle-stop tour of Asia with the trip revealing “a more negative outlook on the Australian economy and its prospects” according to senior rates strategist Martin Whetton.
The trip, meeting with investors in Singapore, Hong Kong and Tokyo, revealed that “clients were very clear on their views on Australia in terms of policy rates, market views, the level of the currency, and the economic outlooks” — they’re all fairly pessimistic.
Here’s Whetton on the almost “universal” view that the RBA will be forced to cut rates again, taking the cash rate below 2%:
“In our meetings we heard an almost universal view that the RBA would be ‘forced’ to cut rates again given headwinds to the domestic economy. Many asked ‘where is the growth going to come from’ to get the Australian GDP back towards a trend growth level.
Commodity price weakness, political concerns (this was quite notable), low wage growth, and a high savings rate that is not being channelled into consumption all formed part of this view. Very few investors assumed there would be a near term rate cut – and there was no suggestion of any explicit bias from the RBA to deliver a cut. But of a rate cut (or cuts) to be delivered over time, given headwinds to the economy – this view was consistent”.
According to Whetton, several investors also expressed a degree of puzzlement over the drop in the unemployment rate, something the RBA and other market types are currently grappling with themselves at present.
Interestingly, there were also concerns raised over the negativity of Australian politics, its impact on economic activity and also the ability of the government to deliver a budget surplus.
While quite familiar to those of us in Australia – this has been part of an ongoing debate for several years – it is interesting to hear those concerns coming from some of our largest international investors.
Given Australia’s reliance on offshore markets for funding, perhaps it’s not the ratings agencies that we should fear but rather the perception of our economy in Asia.
They’re watching us closely. Hopefully those in Canberra are well aware of that.
For the moment, ANZ notes that demand for Australian dollar assets remains firm with demand steady to slightly higher among its customers.