Telegraph.co.uk

By Jamie Dunkley
Published: 6:55AM BST 08 Sep 2010

The European Union risks prolonging the global economic downturn if its largest members insist on using austerity measures to cut their budget deficits, a leading economist has warned.

Joseph Stiglitz, who won the Nobel Prize for Economics in 2001, said the use of deep spending cuts was a “disaster” adding that Europe was heading towards more economic difficulties if politicians cut back spending rather than calm down the financial markets.
“If that (austerity) happens I think it is likely that the economic downturn will last far longer and human suffering will be all the greater,” he warned on Tuesday.

Mr Stiglitz said historical evidence showed that increased state spending helped economies emerge from recession. He added that the example of Ireland showed that austerity leads to declining output, rising unemployment and high bond spreads, instead of renewed investment.
“I feel sorry for the Irish people who have to suffer from this policy… but it doesn’t have global or European consequences. If the UK, Germany or other countries do it, then it is going to have systemic consequences for Europe and the whole world.”
Mr Stiglitz added that policymakers should not be too concerned whether the global economy was on track to a double dip.
“From the perspective of the world, or workers, there is very little difference between growth of a quarter point of a percent and a decline of a quarter point of a percent,” he said. “What workers care about is if growth will be strong enough to reduce the high level of unemployment in the US or Europe.”

Kevin Hamlin, Beijing
September 9, 2010

CHINA’S attempts to rein in property speculation may be faltering as sales surge and prices rise in some cities.

In Shenzhen, housing transactions leapt 84 per cent from July to August, said real estate data provider Soufun Holdings. Sales rose 56 per cent in Guangzhou, 31 per cent in Shanghai and 23 per cent in Beijing, it said.

Premier Wen Jiabao is trying to prevent a property boom turning to bust after banks flooded the economy with money to drive the nation’s recovery. Citigroup said yesterday that more tightening measures were likely and could include restrictions on pre-sales of apartments and on the discounts banks can offer on mortgages.

”The key drivers of the property bubble are excess liquidity and lack of investment alternatives, which are still largely in place,” said Ken Peng, an economist for Citigroup.

Prices are rising with sales. Soufun’s data showed a 12.3 per cent monthly rise for Beijing homes in August, almost 7 per cent in Shenzhen and 6.6 per cent in Guangzhou. The Beijing data excluded welfare housing, which is included in government figures.

BLOOMBERG

The Age

Plush take-off for Melbourne’s international flyers
September 8, 2010
Restaurateurs and retailers are being lured to the airport’s international terminal, as are new operators to its business park, writes Philip Hopkins.

CHIC Melbourne restaurants Cafe Vue and Movida are part of a dramatic retail expansion at Melbourne Airport that includes plans to extend and rebrand the airport’s business park.

A $330 million upgrade of the international terminal is under way, and another $1 billion will be spent over the next five years on the airport as a whole, ranging from infrastructure – roads, water, gas and terminals – to shops.

Property – the airport’s shops and industrial park – earned the airport $300 million in 2009-10.

Melbourne Airport chief executive Chris Woodruff said in his 2010 stakeholder report that retail revenue grew by 11 per cent to $218 million – a ”good number” in a relatively soft market.

”This success came on the back of three new retailers, the negotiation of new agreements, gradual completion of our capital works projects and our growth in passenger numbers,” he said.

Property revenue – mainly generated by rent – increased by 4 per cent to $80 million.

Underpinning the airport’s expansion is the projected growth in passenger numbers. Woodruff said there was a 6 per cent increase to 26 million in the past financial year, with international passengers up 13 per cent to 5.5 million.

A total of 25 international airlines – soon 26 with Air India – and six domestic airlines use the airport.

”Our forecasts in our master plan predict international passengers will increase to between 9 and 12 million and domestic passengers to between 34 and 42 million in 2027-28,” he said. ”Asia will be our playground … the source of the highest percentage growth of international passengers.”

The new shops will be in the expanded international terminal beyond the current Customs and passport control section; it’s the international passengers who spend money while waiting for their flights. According to Gilly Gray, Melbourne Airport’s general manager, retail & car parks, the ”airside” retail space – shops beyond Customs – would double to 6000 square metres.

Shops will go from 19 to 31. There will be four new cosmetic houses, including the premium American cosmetics retailer Kiehl’s; a master of wines area; a small Apple shop; a stand-alone watch store anchored by Swatch that will include the Omega and Breitling brands; Forever New, a specialty Australian fashion store; and a new Billabong shop modelled on its fast fashion outlet at Crown Casino.

Key tenants are in food and beverage. Gray told BusinessDay that architect Elenberg Fraser’s Cafe Vue cafe/restaurant would be similar to the brand’s outlet in St Kilda Road, while the Spanish tapas restaurant Movida would introduce a new cafe called Pulfo. The Red Rock Group, which owns P. J. O’Brien’s, would open a bar along the lines of its Temperance Bar in Chapel Street.

Gray said with an eye on the Asian market, particularly visiting Chinese, a shop selling souvenirs made in Australia would be included.

”Chinese visitors don’t want to buy souvenirs made in China,” she said. ”The ‘green and gold’ triangle will be in that store.”

Gray said the airport’s curfew-free status meant retailers could stay open for 21 hours a day.

Expansion of the business park, which forms the other arm of Melbourne Airport’s property portfolio, is also planned. The airport is a 2400-hectare estate, with 370 hectares set aside for commercial development.

The land is leased from the Commonwealth, which must approve the airport’s master plan every five years. Any development must conform to the master plan, but is not subject to local council or Victorian planning laws.

But according to the airport’s general manager, property, Linc Horton, 235 hectares is effectively zoned as Business 2 and 3, along the lines of Victoria’s planning scheme.

The remaining 135 hectares comes under the airport’s control, supporting aeronautical businesses.

Of the 235 hectares, 63 hectares has been developed over the past eight years, leaving 160 hectares. Companies established there are linked to transport and logistics – Schenker, DHL, Toll, Qantas, Menzies, Australia Post and Australian Air Express – as air freight at the airport has boomed. There are also some manufacturers.

Horton told Business Day that the airport was changing its approach to the business park and becoming a developer itself. ”We are not like a super fund that has a number of different estates. We are like a family estate and need to focus on longevity of income,” he said. ”We intend to take more control of the estate to generate long-term returns for the shareholders.”

Horton said there were not enough aeronautical businesses to have the business park totally air-related. ”We want to create a business park that attracts tenants who want to be in Melbourne and Victoria,” he said.

The airport struggled to compete with the industrial parks of Melbourne’s west, but was ideally placed to build on its strengths for the logistics sector, particularly those dealing with air freight.

”We are well located at the confluence of the Tullamarine and Calder freeways, and the Western Ring Road. We also offer alternative access to the city and country Victoria,” he said.

The airport has forged a joint venture with Australand/CIP as an industrial development consultant. ”They will help us to meet our objectives,” Horton said. ”We are about six months away from rebranding our business park.”

Air freight continues to be a property driver, which will be increased by the imminent arrival of Air India, an additional link with Australia’s growing trade with the Asian giant. ”Eighty per cent of air freight is carried in the belly of international planes,” he said.

The Age

Economy heading for dream run
Peter Martin
September 8, 2010

THE Reserve Bank has presented the incoming government with a glowing picture of the economy, arguing that near-perfect conditions are likely to continue for about a year.

In a statement released after the bank’s board meeting yesterday, governor Glenn Stevens said the economy would remain strong as stimulus measures were withdrawn, with private spending taking the place of government spending.

Whereas ”high levels of public spending” had helped keep the economy growing at its long-term trend over the past year, in the year ahead the work would be done by private income and spending boosted by the mining boom.

Record prices for key exports had pushed the terms of trade past their previous peak. They were already boosting incomes and were set to ”strongly” boost business investment.

While credit conditions remained difficult for some businesses, evidence was ”slowly emerging of more willingness to lend”. With inflation contained within the top half of the target zone, it sees no need to increase rates in the near term, all the more so because of signs of international growth slowing, potentially moderating Mining Boom Mark II.

The picture is that of a Goldilocks economy – neither too hot nor too cold, giving the government breathing space. Access Economics forecasts released this morning point to retail sales growing strongly in the year ahead boosted by 350,000 additional jobs created in the past year.

”Consumer confidence has lifted in recent months on the back of pauses in interest rates and the rising dollar,” said Access director David Rumbens. ”The Reserve Bank may keep rates where they are for a few more months, giving retailers some breathing space in the lead-up to Christmas.

”But we still do expect some further rate rises to occur over the next year, and the recent spectacular rate of jobs growth to moderate from here. That means good retail conditions may be ahead, though still well shy of previous booms.”

Access predicts outsized real spending growth of 5.2 per cent in Victoria this financial year, with NSW growth a more moderate 2.6 per cent reflecting Victoria’s much faster employment and population growth.

It warns that the smaller population targets embraced by both sides of politics should slow sales growth, with half the sales growth in recent years being due to population.

Lower targets might also drive up the cost of workers. ”Retail may be particularly exposed in terms of supply of part-time workers if there is a sharp reduction in the number of international students coming to Australia,” Mr Rumbens said.

The Age

Jewel Topsfield
September 8, 2010

AUSTRALIA has the highest proportion of international students enrolled in its tertiary institutions in the world, according to an international study.

The OECD’s Education at a Glance report, released last night, found one in five students in tertiary education in Australia in 2008 was from overseas. Australia was ahead of Austria, which had 15.5 per cent foreign students, Belgium (8.6 per cent) and Canada (6.5 per cent) and well ahead of the OECD average of 6.7 per cent.

It was also more reliant on students to pick up the bill for tertiary education than most other developed countries.

Less than half of funding for tertiary institutions in Australia came from the public purse, with 55.7 per cent from private sources such as fees paid by international students.

On average in OECD countries, 69.1 per cent of tertiary education is paid for publicly, with the figure rising as high as 97 per cent in Norway and 96.5 per cent in Denmark.

The international education market is worth $18 billion to the Australian economy and universities depend on fees from foreign students.

International students are a sensitive topic in Australia. Visa numbers plummeted 16 per cent last financial year following restrictions on access to permanent residency after completing courses such as cookery and hairdressing, a crackdown on disreputable colleges and attacks on Indian students.

Ben Jensen, a former OECD analyst, said that while the report did not reflect the drop in international student visas after the immigration crackdown, it did reflect how reliant Australia was on foreign students to prop up university funding.

He said most other countries had been investing heavily in tertiary education while in Australia investment dropped from 1.6 per cent of gross domestic product in 1995 to 1.5 per cent in 2007.

Heraldsun

AAP September 07, 2010 2:48PM

AT its meeting today, the Board decided to leave the cash rate unchanged at 4.5 per cent.

The global economy grew faster than trend over the year to mid 2010, but will probably ease back to about trend pace over the coming year.

Growth in China is moderating to a more sustainable rate as policies are now less accommodating.

Similar adjustments to policies and growth rates are occurring in other countries in the Asian region.

In Europe, output has improved significantly so far this year, but prospects for next year are probably for slower growth given planned fiscal contraction.

US growth was solid in the first half of 2010 but the pace of expansion in the second half of the year is looking weaker.

Financial markets are functioning more smoothly than they were a few months ago, though caution persists, with equity prices soft and yields on sovereign bonds issued by major countries reaching unusually low levels.

Commodity prices are also off their peaks, though those most important for Australia remain at very high levels, and the terms of trade have regained their peak of two years ago.

Recent information suggests that the Australian economy has been growing at around trend pace. This has been helped by high levels of public spending over the past year but private demand has also been firming.

The high level of the terms of trade is boosting incomes, which will tend to add to demand over the year ahead, while the effects of earlier expansionary policy measures will be diminishing. Indications are that business investment in particular could increase strongly.

Domestic credit and asset markets present a more balanced picture than six months ago. Business credit has stabilised and while credit conditions for some sectors remain difficult, evidence is slowly emerging of more willingness to lend.

Credit outstanding for housing has slowed a little over recent months, and the upward pressure on dwelling prices appears to have abated.

The demand for labour has firmed over the past year in line with improving growth. After the significant decline last year, growth in wages has picked up somewhat, as had been expected.

Through to mid 2011, underlying inflation is likely to be in the top half of the target zone, while CPI inflation will probably be just above 3 per cent for a few quarters due to the impact of the tobacco tax changes.

The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade.

With growth in the near term likely to be close to trend, inflation close to target and with the global outlook remaining somewhat uncertain, the Board judged this setting of monetary policy to be appropriate for the time being.

The Age

Chris Zappone
September 7, 2010 – 12:57PM

Saving for a first home has become more difficult for renters in 2010, leaving more of them in the so-called rental trap as the confidence of would-be home buyers wanes, a new survey shows.

Only a quarter of borrowers and would-be borrowers surveyed in the Genworth Homebuyer Confidence Index thought this year was a good one in which to buy, down from half of the respondents in the 2009.

”The vast majority of first homebuyers live in rental accommodation prior to purchasing a home, and as rent and indebtedness increase, it becomes harder for renters to save up a deposit for a home” the report stated.

Surveys show housing affordability is worsening on most fronts. Rents are on the rise, driven by landlords passing on higher interest costs and steeper prices for building maintenance, while rising house prices mean the average loan size of first-home buyers continues to swell.

Rents on houses and apartments increased 2.9 per cent in the year to June, according to RP Data, matching inflation excluding volatile items over that time. The property data group expects rents to accelerate in the coming year.

The Reserve Bank kept its key interest rate at 4.5 per cent today, where it has been since May.

Rising prices

First-time buyers are also having to pay more to get into the housing market.

The average cost of a first home loan has risen by $14,300 over the two years to June. Buyers no longer have access to the half-century low interest rates and federal first home buyer grants available in June 2008, during the depths of the global financial crisis.

On the positive side, though, the robust labour market has helped underpin an improvement in the overall homebuyer confidence index, which remained almost steady at 99.1 in 2010 from 99.5 in 2009.

The gauge, set at a baseline of 100 in 2007, is based on the responses of 12,000 borrowers over a five-year period.

Despite evidence of Australia’s strong economy – boasting a low unemployment rate of 5.3 per cent, its fastest growth in three years, and manageable inflation – the housing industry has struggled to keep pace with demand for affordable homes.

Home building has fallen to a 16-month low in the Australian Industry Group-Housing Industry Association’s Australian performance of construction index for August. That index posted its third consecutive month of contraction, down 0.1 points to 43.2.

Entrants to the housing market face record low affordability, with the slide in part exacerbated by government efforts taken to boost home buying.

The government and private sector estimate the country faces a shortfall of 200,000 affordable homes.

Home prices rose by an average of 1 per cent a month in 2009. More recently, price rises have weakened, after six interest rate increases. Global stockmarket wobbles, including over the prospect of the US economy sliding back into a recession, have contributed to undermining investor confidence in housing.

Median national home prices rose by 0.1 per cent in July, in raw terms, from a 0.8 per cent fall in June, according to RP Data-Rismark figures, leaving the median national dwelling little changed for the month at $465,000.

By Angela Harper From: AAP September 07, 2010 10:25AM

AUSTRALIA’S economy will be strong and is on the upswing for a boom within the next decade, a leading economist says.

BIS Shrapnel chief economics Frank Gelber, speaking in Brisbane, said the boom will come as a result of the country’s strong exports to the thriving continent of Asia, a strong mining sector and fiscal stimulus during the global financial crisis.

“All of the pre-conditions that led to the global financial crisis are gone,” Dr Gelber said.

“The mining drivers are here for another five years at least.

“Five years from now this economy is going to be really strong coming from an undersupplied, under capacity situation.

“The boom won’t mature in 18 months, it will take six or seven years, or eight or nine.”

But the equity markets are gushy he said, which is keeping a lid on the upswing.

“Now is the time where I would go aggressively equity and away from fixed interest because the risk is gone,” Dr Gelber said.

The US, UK and some European markets will take more than a decade to recover, Dr Gelber predicts.

Nor does he say those markets are having a double dip recession, because they didn’t recover fully from the original hit from the financial meltdown.

Australia’s situation is totally different from overseas and the country is emerging from a relatively mild downturn.

Specifically, he said Queensland had recovered well, as it was the first state hit the hardest as the GFC hit.

“There was a time where year-on-year went negative, but they are strongly positive again,” he said.

But it is not only mining holding up the economy, Dr Gelber said because the stimulus was largely responsible for staving off the impacts of the GFC.

“We would have had a recession had it not been for a very strong household handouts and government investment,” he said.

And with nearly 80 per cent of exports going to Asia, he says that’s been another saviour.

“The strength of Asia is been an incredible windfall for us,” he said.

The unemployment rate will also drop below 5 per cent by mid 2011, which will mean the country will run into labour and capacity constraints two years from now.

“Then we’ll see the re-emergence of demand inflationary pressure and the Reserve Bank freaking out because inflation’s going up,” he said.

“And they’ll fight it with rising interest rates and will cut the housing boom in the bud before we have a chance to supply our under supplied markets.”

UPDATE: From: AAP September 06, 2010 4:51PM

THE sharemarket closed stronger today as the All Ordinaries broke past the 4600-point psychological barrier and the dollar edged higher.

The benchmark S&P/ASX 200 index rose 34.3 points, or 0.76 per cent, to 4575.5 points at close of trade, while the broader All Ordinaries gained 38.1 points (0.83 per cent) at 4615.7 points.

CommSec market analyst Juliette Saly said US jobs figures on Friday had helped spur local investors.

“Our market rose about 4 per cent over the course of last week, and it is nice to see more momentum,” Ms Saly said.

It was also significant that the All Ordinaries had gone above the psychological 4600 point barrier, she said.

Financials were mainly stronger, but investment bank Macquarie bucked the trend to fall $1.74 (4.7 per cent) at $35.25 after it said its first-half profit would likely fall by 25 per cent.

But the big four banks all posted solid gains – Commonwealth Bank was up 55 cents at $52.12,Westpac rose 28c at $22.78, National Australia Bank lifted 18c at $24.28 and ANZ gained 37c at $23.66.

The Australian dollar nudged higher in a quiet Asia session, and trading was expected to remain subdued due to a Labor Day holiday in the US, Dow Jones Newswires reported.

The positive risk tone was buoyed by the US jobs number and should hold for at least the early part of this week, said Morgan Stanley Strategist Emma Lawson.

The major focus is on tomorrow’s Reserve Bank of Australia policy meeting. While the central bank is expected to leave the cash rate unchanged at 4.5 per cent, much will be read into its accompanying commentary.

Also in focus will be whether Australia reaches agreement to form a new minority government, with a decision by three key non-party lawmakers also due tomorrow.

Before then, CMC Markets Trader Tim Waterer said the local unit would take its direction from metals and stock prices.

He pegs support for the Australian dollar at US90.50 cents, and resistance at US92.20c.

“If equity markets continue to run higher, then US92c can be hit this week, and US92.50c is on the cards, depending upon how robust Thursday’s employment numbers are,” Mr Waterer said.

At 0600 GMT, the Australian dollar was at US91.70c, up from US90.79c late Friday. Against the Japanese yen, the Australian dollar was at Y77.375, from Y76.475.

For bond futures, the three-year contract fell 13 ticks to 95.43 on the better tone, while 10-years fell nine ticks to 95.07.

Back in equities, insurers were less impressive, with investors fearful about exposure to the 7.1 magnitude earthquake that hit Christchurch early on Saturday.

Suncorp-Metway fell 3c (0.35 per cent) to $8.58, despite reaffirming full-year earnings guidance.

Insurance Australia Group pared back early losses to rise 1c to $3.48 at the close.

The materials sector was nearly 1 per cent higher, with gains to big miners, including a small rise to BHP Billiton, despite the world’s largest resources company going ex-dividend. BHP Billiton shares were 22c higher at $38.55.

Ms Saly said the gold sector had a good day, with Norton Gold Fields jumping 20 per cent to 21c after it completed a litigation settlement.

Gold explorer Andean Resources gained nearly 10 per cent to $7, after it emerged from a trading halt following a takeover bid from Goldcorp Inc.

The energy sector was mixed, but Cougar Energy had a positive day, jumping nearly 23 per cent to 3.8c, after it struck a deal with the Queensland government that could see its Kingaroy coal gasification pilot plant reopened.

Qantas shares fell 1c to $2.52 on the weight of a High Court ruling that could force the carrier to pay back millions of dollars in commissions to travel agents.

Retirement-village owner Aevum put on 3.5c at $1.74, after it said an expert report supports its view that the unsolicited takeover bid by rival Stockland was not high enough.

With Dow Jones Newswires

The Age

House prices a risk to ‘AAA’ rating, not politics: S&P
September 6, 2010 – 2:54PM
International credit rating agency Standard & Poor’s (S&P) has reaffirmed Australia’s AAA credit rating, saying there is a strong political will to bring the budget back to surplus whoever eventually wins power.

As three independent MPs continue to deliberate who they’ll back to lead the country between Labor Prime Minister Julia Gillard and Opposition Leader Tony Abbott, S&P said today it expects the budget to return to surplus in two to three years time.

Both Labor and the coalition have promised a surplus in 2012/13.

‘‘We believe that a strong political commitment to fiscal consolidation … will continue regardless of which major party leads the government that emerges from the August general election,’’ the rating agency said.

‘‘In our opinion, this commitment will be supported by strong bipartisan political and community support for conservative public finances and stable political consensus on fiscal, monetary, and exchange rate policies.’’

It said the rating is also supported by low government debt, strong institutions and transparency in economic decision-making.

‘‘We also note that there is considerable scope for the government and central bank to provide further stimulus, if required,’’ it said.

House prices a risk

The outlook for Australia’s rating is stable. However, the risks to this outlook stem from potentially sharply lower resources export prices and house prices, although this appears contained at present.

While Australia’s government sector finances are not strained, private sector balance sheets, particularly in the banking system, also carry a high level of external debt that is a weakness compared with its peers.

Still, while Australia’s banking system has been affected by the financial turmoil of the past two years, unlike some peers it has not required government recapitalisation and has remained profitable and adequately capitalised. It has also maintained good asset quality by international standards.

‘‘The Australian economy outperformed every major OECD in fiscal 2009, partly thanks to the cumulative effects of fiscal stimulus, the strength of the mining sector, 30 years of microeconomic reforms, low wages growth, and a sound and rising savings rate,’’ it said. ‘‘With still-sluggish household consumption, the economy’s continued recovery depends mainly on the strength of global recovery and support from regional trading partners, particularly China.’’

As a result, S&P expects the economy to grow by 3.3 per cent in 2010 and 3.5 per cent in 2011. The agency also affirmed Australia’s A1-plus short-term rating.

AAP