You don’t need to be an economic genius to know that gold prices rise when investors seek a safe haven as protection against looming tough economic times. Gold prices have recently lifted to their highest point since 2013, with gold futures forecasting a steady rise over the next five years. The reason?
Economists and investors foresee a bear market, and Australia has its very own potentially scary version of the Three Bears: the world economic outlook, weak Australian household income growth and slowing job vacancies.
It’s no fairy tale.
Daddy Bear: The world economic outlook
Daddy Bear knows that, in order to protect his brood, he needs to keep an eye on what is happening outside his own backyard.
The RBA has become increasingly worried about the global economy over the past year, due to a number of factors:
- The trade war between the US and China
- A struggling manufacturing sector
- Concern about the debt problem in China
- The potential for a US recession
- A reduction in interest rates
It’s important to grasp that right now we’re talking about risks only, not the inevitable reality of another global economic meltdown. But the charts indicate that we may not be looking at ‘Happily ever after’.
Mummy Bear: Household income
Mummy Bear’s interests are closer to home. She’s worried that there might not be enough money coming into the house to pay for the porridge and replace Baby Bear’s broken chair.
In the same vein, the RBA’s second big concern is the weakness of Australian household income growth. Wages growth has been modest across most industries.
Overall, households have faced an ‘income recession’ over recent years, reflecting the modest growth of income in the wider economy. And the economy has not been strong enough for long enough to afford big pay rises.
Baby Bear: Job market
Baby Bear can see that there’s plenty of work for his parents right now, but he’s a bit worried about the prospect of finding employment himself when the time comes.
He’s not the only one. The RBA, too, is aware of the risk that jobs growth will slow. The unemployment rate, and the numbers of people in employment, have both improved in recent times despite weaker economic growth. But forward indicators suggest that this may not continue:
- Australia’s labour force participation rate – the number of people actually in employment – has risen to a record high. This means that wage growth is likely to remain subdued as long as the supply of workers continues to meet the demand.
- Manufacturing jobs have declined sharply in recent years
- Overall, the growth of job vacancies is down. There has also been a decline in hiring intentions by businesses.
Not a fairytale ending. But maybe just a turn in the road.
In its October statement, the RBA noted that economic growth was weaker than they expected over the year to June 2019. They believe that the economy might be approaching a ‘gentle’ turning point, with positives ahead. These include lower interest rates, tax cuts, high infrastructure spending, stabilisation of housing markets and a decent resources sector outlook.
Goldilocks couldn’t face the results of her adventure and ran away. But the RBA (and hopefully the Federal Government) seem to have taken the measure of the Three Bears, and appear to be in control of the story so far.